Use these links to rapidly review the documentTABLE OF CONTENTS Item 8. Financial Statements and Supplementary Data. PART IV

Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-K





ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
FROM                  TO


COMMISSION FILE NUMBER: 814-00841



FS Energy and Power Fund(Exact name of registrant as specified in its charter)





Delaware

27-6822130(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)201 Rouse BoulevardPhiladelphia, Pennsylvania

19112(Address of principal executive offices)

(Zip Code)


Registrant's telephone number, including area code: (215) 495-1150



Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Shares of Beneficial Interest, par value
$0.001 per share



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o    No ý.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No ý.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was
required to submit and post such files). Yes o    No o.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "accelerated filer," "large accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o

Accelerated filer o

Non-accelerated filer ý (Do not check if a
smaller reporting company)

Smaller reporting company o
Emerging Growth company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o    No ý.

There is no established market for the Registrant's common shares of beneficial interest. The Registrant closed the public offering of its common shares in
November 2016. The last offering price at which the registrant issued shares in its public offering was $8.35 per share. Since the registrant closed its public offering, it has continued to issue
shares pursuant to its distribution reinvestment plan. The most recent price at which the registrant has issued shares pursuant to the distribution reinvestment plan was $6.70 per share.

There
were 440,155,335 shares of the Registrant's common shares of beneficial interest outstanding as of March 7, 2018.

Documents Incorporated by Reference

Portions of the registrant's definitive Proxy Statement relating to the Registrant's 2018 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission within 120 days following the end of the Registrant's fiscal year, are incorporated by reference in Part III of this annual report on Form 10-K as indicated
herein.





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FS ENERGY AND POWER FUND    FORM 10-K FOR THE FISCAL YEAR  ENDED DECEMBER 31, 2017    TABLE OF CONTENTS





PagePART IITEM 1.

BUSINESS

1ITEM 1A.

RISK FACTORS

24ITEM 1B.

UNRESOLVED STAFF COMMENTS

53ITEM 2.

PROPERTIES

53ITEM 3.

LEGAL PROCEEDINGS

53ITEM 4.

MINE SAFETY DISCLOSURES

53PART IIITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

54ITEM 6.

SELECTED FINANCIAL DATA

56ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

58ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

76ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

77ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

134ITEM 9A.

CONTROLS AND PROCEDURES

134ITEM 9B.

OTHER INFORMATION

135PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

136ITEM 11.

EXECUTIVE COMPENSATION

136ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

136ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

136ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

136PART IVITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

137ITEM 16.

FORM 10-K SUMMARY

142SIGNATURES

143


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PART I

Many of the amounts and percentages presented in Part I have been rounded for convenience of presentation and all dollar amounts,
excluding per share amounts, are presented in thousands unless otherwise noted.

Item 1.    Business.

FS Energy and Power Fund, or the Company, which may also be referred to as "we," "us" or "our," was organized in September 2010 and commenced
investment operations in July
2011. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company, or BDC, under the Investment Company
Act of 1940, as amended, or the 1940 Act. In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a regulated investment company, or RIC,
under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31, 2017, we had total assets of approximately $4.3 billion.

We
are managed by FS Investment Advisor, LLC, or FS Advisor, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, which
oversees the management of our operations and is responsible for making investment decisions with respect to our portfolio. FS Advisor engaged GSO Capital Partners LP, or GSO, to act as our
investment sub-adviser. GSO currently assists FS Advisor in identifying investment opportunities and makes investment recommendations for approval by FS Advisor, according to guidelines set by FS
Advisor. GSO, a registered investment adviser under the Advisers Act, oversaw approximately $138.1 billion in assets under management as of December 31, 2017. GSO is the credit platform
of The Blackstone Group L.P., or Blackstone, a leading global alternative asset manager and provider of financial advisory services.

As
we previously announced on December 11, 2017, GSO intends to resign as our investment sub-adviser and terminate the investment sub-advisory agreement, dated April 28,
2011, or the investment sub-advisory agreement, that FS Advisor has entered into with GSO, effective April 9, 2018 (the date of such termination, the GSO end date). In connection with GSO's
resignation as our investment sub-adviser, FS Advisor and its affiliates and EIG Asset Management, LLC and its affiliates, or EIG, desire to enter into a relationship whereby FS Advisor and EIG
will jointly provide management, investment advisory and administrative services to us through FS/EIG Advisor, LLC, or FS/EIG Advisor, a newly-formed investment adviser jointly operated by FS
Advisor and EIG. See "The Transition of Investment Advisory Services" for information regarding our potential investment advisory
relationship with FS/EIG Advisor.

Our
investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of energy and power, or Energy, companies. This investment policy may not
be changed without at least 60 days' prior notice to holders of our common shares of any such change. We consider Energy companies to be those companies that engage in the exploration,
development, production, gathering, transportation, processing, storage, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal
or power, including those companies that provide equipment or services to companies engaged in any of the foregoing. We concentrate our investments on debt securities in Energy companies that we
believe have, or are connected to, a strong infrastructure and/or underlying asset base so as to enhance collateral coverage and downside protection for our investments. We may also make select equity
investments in certain Energy companies meeting our investment objectives of current income generation and long-term capital appreciation. Our primary areas of focus will be the upstream, midstream,
power and service and equipment sub-sectors of the Energy industry; however, we broadly define our "Energy Investment Universe" as follows:



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Our
investment objectives are to generate current income and long-term capital appreciation. We seek to meet our investment objectives by:



Our
portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy
companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers or other investors in the secondary
market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to best match a project's or company's
needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity interests that pay consistent,
high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests may include interests in master
limited partnerships, or MLPs. MLPs are entities that (i) are structured as limited partnerships or limited liability companies, (ii) are publicly traded, (iii) satisfy certain
requirements to be treated as partnerships for U.S. federal income tax purposes and (iv) primarily own and operate midstream and upstream Energy companies. In connection with certain of our
debt investments or any restructurings of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection
with a restructuring. In addition, a portion of our portfolio may be comprised of minority interests in the form of common or preferred equity or other equity-related securities, such as rights and
warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, in our target companies, as well as derivatives, including total
return swaps and credit default swaps. FS Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less
senior portions of the capital structure or other more opportunistic investments. We expect that the size of our individual investments will generally range between $10 million and
$250 million each, although investments may vary proportionately as the size of our capital base changes and will ultimately be at the discretion of FS Advisor, subject to oversight by our
board of trustees.

To
seek to enhance our returns, we intend to employ leverage as market conditions permit and at the discretion of FS Advisor, but in no event will leverage employed exceed 50% of the
value of our assets, as required by the 1940 Act.

As
a BDC, we are subject to certain regulatory restrictions in making our investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in
transactions

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originated
by the BDC or its affiliates in the absence of an exemptive order from the U.S. Securities and Exchange Commission, or SEC. However, BDCs are permitted to, and may, simultaneously co-invest
in transactions where price is the only negotiated term. In an order dated June 4, 2013, or the Order, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain
conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS Investment Corporation II, FS Investment
Corporation III, FS Investment Corporation IV, or the FSIC Franchise, and any future BDCs that are advised by FS Advisor or its affiliated investment advisers, or collectively, our co-investment
affiliates. However, in connection with the potential transition of advisory services from a sub-advisory relationship with GSO to a joint advisory relationship with EIG, and in an effort to mitigate
potential future conflicts of interest, our board of trustees has authorized and directed that we exercise our rights under the Order to decline to participate in any new potential co-investment
transaction pursuant to the Order that would be within the then-current investment objectives and strategies of the FSIC Franchise unless sourced by GSO, EIG or the FS/EIG Advisor. We may still rely
on the Order to participate in certain transactions with our co-investment affiliates with respect to co-investments previously made under the Order. We believe this relief has and may continue to
enhance our ability to further our investment objectives and strategy. Because we did not seek exemptive relief to engage in co-investment transactions with GSO and its affiliates, we will continue to
be permitted to co-invest with GSO and its affiliates only in accordance with existing regulatory guidance (e.g., where price is the only negotiated term). See
"The Transition of Investment Advisory Services" for information regarding the exemptive relief EIG is seeking with respect to our
potential investment advisory relationship with FS/EIG Advisor.

While
a BDC may list its shares for trading in the public markets, we have currently elected not to do so. We believe that a non-traded structure is more appropriate for the long-term
nature of the assets in which we invest. This structure allows us to operate with a long-term view, similar to that of other types of private investment funds, instead of managing to quarterly market
expectations. Furthermore, while our distribution reinvestment and share repurchase prices are subject to adjustment in accordance with the 1940 Act and our share pricing policy, because our common
shares will not be listed on a national securities exchange, our shareholders will not be subject to the daily share price volatility associated with the public markets. However, the net asset value
of our common shares may be volatile.

For
information regarding our share repurchase program, distributions and our distribution reinvestment plan, including certain related tax considerations, see "Item 5. Market for
Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity SecuritiesShare Repurchase Program and Distributions" and "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of OperationsRIC Status and Distributions."

About FS Advisor

FS Advisor is a subsidiary of our affiliate, Franklin Square Holdings, L.P. (which does business as FS Investments), or FS Investments, a
national sponsor of alternative investments designed for the individual investor. FS Advisor is registered as an investment adviser with the SEC under the Advisers Act and is led by substantially the
same personnel as the senior management teams of the investment advisers to certain other BDCs, open and closed-end management investment companies and a real estate investment trust sponsored by FS
Investments and such personnel may serve in similar or other capacities for the investment advisers to future investment vehicles sponsored by FS Investments.

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In
addition to managing our investments, the managers, officers and other personnel of FS Advisor also currently manage the following entities, or together with us, the Fund Complex,
through affiliated investment advisers:



Name

Entity

Investment Focus

Gross
Assets(1)FS Investment Corporation

BDC

Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies.

$
4,104,275FS Investment Corporation II(2)

BDC

Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies.

$
5,218,803FS Investment Corporation III(2)

BDC

Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies.

$
3,944,960FS Investment Corporation IV(2)

BDC

Primarily invests in senior secured loans, second lien secured loans and, to a lesser extent, subordinated loans of private U.S. companies.

$
359,158FS Global Credit Opportunities Fund(4)

Closed-end management investment company

Primarily invests in secured and unsecured floating and fixed rate loans, bonds and other types of credit instruments.

$
2,328,169FS Energy Total Return Fund(3)

Closed-end management investment company

Primarily invests in the equity and debt securities of natural resource companies.

$
32,312FS Multi-Strategy Alternatives Fund

Open-end management investment company

Primarily invests in a broad spectrum of alternative investment strategies with low correlation to equity and fixed income markets.

$
58,326FS Credit Real Estate Income Trust, Inc.(2)

REIT

Primarily invests in senior loans secured by commercial real estate in the United States.

$
41,281FS Credit Income Fund(3)

Closed-end management investment company

Primarily invests in debt obligations and, to a lesser extent equity obligations.

$
20,000


(1)As
of December 31, 2017, except as otherwise noted below.(2)As
of September 30, 2017.(3)As
of October 31, 2017.(4)Five
funds affiliated with FS Global Credit Opportunities Fund, FS Global Credit Opportunities FundA, FS Global Credit Opportunities FundD,
FS Global Credit Opportunities FundT, FS Global Credit Opportunities FundADV and FS Global Credit Opportunities FundT2, which also have the same investment
objectives and strategies as FS Global Credit Opportunities Fund, closed their respective continuous public offerings to new investors.


Our
chairman, president and chief executive officer, Michael C. Forman, has led FS Advisor since its inception. In 2007, he co-founded FS Investments with the goal of delivering
alternative investment solutions, advised by what FS Investments believes to be best-in-class institutional asset managers, to individual investors nationwide. In addition to leading FS Advisor,
Mr. Forman currently serves as chairman, president and/or chief executive officer of each of the other funds in the Fund Complex and each of their respective investment advisers.

FS
Advisor's senior management team has significant experience in private lending and private equity investing, and has developed an expertise in using all levels of a firm's capital
structure to produce income-generating investments, while focusing on risk management. The team also has extensive knowledge of the managerial, operational and regulatory requirements of publicly
registered alternative asset entities, such as BDCs. We believe that the active and ongoing participation by FS Investments and its affiliates in the credit markets, and the depth of experience and
disciplined investment approach of FS Advisor's management team, will allow FS Advisor to successfully execute our investment strategy.

All
investment decisions currently require the unanimous approval of FS Advisor's investment committee, which is currently comprised of Michael Kelly, Brian Gerson and Sean Coleman. Our
board of trustees, including a majority of independent trustees, oversees and monitors our investment performance and annually reviews the investment advisory and administrative services agreement and
the investment sub-advisory agreement to determine, among other things, whether the fees payable under such agreements are reasonable in light of the services provided.

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About FS Investments

FS Investments is a leading asset manager dedicated to helping individuals, financial professionals and institutions design better portfolios.
The firm provides access to alternative sources of income and growth and focuses on setting the industry standards for investor education and transparency.

FS
Investments is headquartered in Philadelphia with offices in Orlando, FL, New York, NY and Washington, D.C. The firm had more than $20 billion in assets under management as of
December 31, 2017.

About GSO

From time to time, FS Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills that FS Advisor
believes will aid it in achieving our investment objectives. FS Advisor engaged GSO to act as our investment sub-adviser. GSO currently assists FS Advisor in identifying investment opportunities and
makes investment recommendations for approval by FS Advisor, according to guidelines set by FS Advisor. GSO also currently serves as the investment sub-adviser to FS Global Credit Opportunities Fund.
In addition, GSO's wholly-owned subsidiary, GSO/Blackstone Debt Funds Management LLC, or GDFM, currently serves as the investment sub-adviser to FS Investment Corporation, FS Investment
Corporation II, FS Investment Corporation III and FS Investment Corporation IV. GSO is a Delaware limited partnership with principal offices located at 345 Park Avenue, New York, New York
10154.

GSO
is the credit platform of Blackstone, a leading global alternative asset manager. As of December 31, 2017, GSO and its affiliates, excluding Blackstone, managed approximately
$138.1 billion of assets across multiple strategies and investment types within the leveraged finance marketplace, including leveraged loans, high-yield bonds, distressed, mezzanine and private
equity. GSO has extensive experience investing in Energy companies. From 2005 through 2017, funds managed by GSO have invested over $24.3 billion in Energy companies. As investment sub-adviser,
GSO utilizes its experience in Energy investing and currently makes recommendations to FS Advisor in a manner that is consistent with its existing investment and monitoring processes.

Blackstone
is a leading global alternative asset manager and provider of financial advisory services. It is one of the largest independent managers of private capital in the world, with
assets under management of approximately $434.1 billion as of December 31, 2017. Blackstone's alternative asset management businesses include the management of private equity funds, real
estate funds, funds of hedge funds, credit-oriented funds, collateralized loan obligation vehicles, separately managed accounts and publicly-traded closed-end mutual funds. Blackstone is a
publicly-traded limited partnership that has common units which trade on the New York Stock Exchange LLC under the ticker symbol "BX." Information about Blackstone and its various affiliates,
including certain ownership, governance and financial information, is disclosed in Blackstone's periodic filings with the SEC, which can be obtained from Blackstone's website at http://ir.blackstone.comor the SEC's website atwww.sec.gov. Information contained on Blackstone's
website and in Blackstone's filings with the SEC are not incorporated by reference into this annual report on Form 10-K and shareholders should not consider that information to be part of this
annual report on Form 10-K.

Market Opportunity

Oil prices reached a two-and-a-half-year high in December 2017, benefiting from increased geopolitical tensions, an extension of OPEC's November
2016 output cuts and the temporary closure of a key pipeline in the North Sea. With rising global demand and declining oil inventories as a backdrop, energy credit benchmarks rose throughout the
fourth quarter and full-year 2017. The "spread to worst" on the ICE BofAML High Yield Energy Index, or the Energy Index, which measures the difference from the Energy Index's worst performing security
to Treasuries, tightened from a high of approximately 554 basis points in June 2017 to 424 basis points as of December 31, 2017. Similarly, the yield on the Energy Index declined from a 2017
high of 7.34% in June-and a recent cyclical high of nearly 21% in February 2016-to just 6.4% at the close of 2017.

Through
the first half of 2017, West Texas Intermediate (WTI) crude prices remained largely range-bound between $45 and $55 and fell as low as approximately $42 in June 2017. Oil prices
rose

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steeply
in the second half of the year as global supplies fell despite higher U.S. output, ending the year at $60.42 per barrel. While oil price volatility may continue to impact the sector in the
short term, the long term fundamentals remain supportive of select energy-related investments as rising global energy demand will likely continue to drive the increased capital needs of private energy
and power companies.

Characteristics of and Risks Related to Investments in Private Companies

We invest primarily in income-oriented securities of privately-held Energy companies within the United States. Investments in private companies
pose significantly greater risks than investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to
withstand financial distress. As a result, these companies, which may present greater credit risk than public companies, may be unable to meet the obligations under their debt and equity securities
that we hold. Second, the investments themselves may often be illiquid. The securities of many of the companies in which we invest are not publicly traded or actively traded on the secondary market
and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, our directly originated investments generally will not be traded on any
secondary market, and a trading market for such investments may not develop. These securities may also be subject to legal and other restrictions on resale. As such, we may have difficulty exiting an
investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. These investments may also be difficult to value because little public information generally
exists about private companies, requiring an experienced due diligence team to analyze and value the potential portfolio company. Finally, these companies may not
have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FS Advisor and/or GSO to obtain adequate information through their due diligence efforts to
evaluate the creditworthiness of, and risks involved in investing in, these companies, and to determine the optimal time to exit an investment. These companies and their financial information will
also generally not be subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and other rules and regulations that govern public companies that are designed to protect investors.

Investment Strategy

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This
investment policy may not be changed without at least 60 days' prior notice to holders of our common shares of any such change. In accordance with the best interests of our shareholders, FS
Advisor monitors our targeted investment mix as economic conditions evolve.

When
identifying prospective portfolio companies, we focus primarily on the attributes set forth below, which we believe help us generate higher total returns with an acceptable level of
risk. While these criteria provide general guidelines for our investment decisions, we caution investors that, if we believe the benefits of investing are sufficiently strong, not all of these
criteria necessarily will be met by each prospective portfolio company in which we choose to invest. These attributes are:



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In
addition, in an order dated June 4, 2013, the SEC granted exemptive relief that, subject to the satisfaction of certain conditions, expanded our ability to co-invest in certain
privately negotiated investment transactions with our co-investment affiliates, which we believe has and may continue to enhance our ability to further our investment objectives and strategy. See
"The Transition of Investment Advisory Services" for information regarding the exemptive relief EIG is seeking with respect to our potential investment advisory relationship with FS/EIG
Advisor.

Potential Competitive Strengths

We believe that we offer investors the following potential competitive strengths:



We believe that the breadth and depth of the experience of FS Advisor's senior management team, and currently, with the resources of GSO's
investment team, which together are dedicated to sourcing, structuring, executing, monitoring and harvesting a broad range of private investments, provides us with a significant competitive advantage
in sourcing and analyzing what we believe to be attractive investment opportunities.



Our long-term investment horizon gives us great flexibility, which we believe allows us to maximize returns on our investments. Unlike most
private equity and venture capital funds, we are not required to return capital to our shareholders once we exit a portfolio investment. Such funds typically can only be invested once and must be
returned to investors after a specific time period. These provisions often force private equity and venture capital funds to seek liquidity events, including initial public offerings, mergers or
recapitalizations, more quickly than they otherwise might, potentially resulting in a lower return to investors. We believe that freedom from such capital return requirements, which allows us to
invest using a longer term focus, provides us with the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.



FS Advisor currently seeks to leverage GSO's access to transaction flow. GSO seeks to generate investment opportunities through syndicate and
club deals (generally, investments made by a small group of investment firms), through its trading platform, relationships with investment banks, which may be exclusive to GSO, and, subject to
regulatory constraints as discussed under "Regulation" and the allocation policies of GSO and its affiliates, as applicable, also through
GSO's direct origination channels. These include significant contacts to participants in the credit and leveraged finance marketplace, which it can draw upon in sourcing investment opportunities for
us. With respect to

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syndicate
and club deals, GSO has built a network of relationships with commercial and investment banks, finance companies and other investment funds as a result of the long track record of its
investment professionals in the leveraged finance marketplace. With respect to GSO's origination channel, FS Advisor currently seeks to leverage the global presence of GSO and its long-standing
personal contacts within the Energy industry to generate access to directly originated transactions with attractive investment characteristics. GSO also has a trading platform, which, we believe,
currently allows us access to the secondary market for investment opportunities.



FS Advisor employs a conservative investment approach focused on current income and long-term investment performance. This investment approach
involves a multi-stage selection process for each investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of deteriorating credit
conditions at portfolio companies which would result in adverse portfolio developments. This strategy is designed to maximize current income and minimize the risk of capital loss while maintaining the
potential for long-term capital appreciation.



FS Advisor and GSO believe that their broad expertise and experience investing at all levels of a company's capital structure enable us to
manage risk while affording us the opportunity for significant returns on our investments. We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that
will perform in a broad range of economic conditions. In addition, we seek to leverage this broad-ranging capability to enable us to provide Energy companies with financing that most closely aligns
with their particular capital needs. We believe that such flexibility is valuable to Energy companies and provides us with a competitive advantage over other capital providers that are more limited in
the securities in which they invest. See "The Transition of Investment Advisory Services" for information regarding GSO's resignation as
our investment sub-adviser and our potential investment advisory relationship with FS/EIG Advisor.

Operating and Regulatory Structure

Our investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under the
investment advisory and administrative services agreement, we have agreed to pay FS Advisor an annual base management fee based on the average value of our gross assets as well as incentive fees based
on our performance. See "See Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsContractual Obligations" for a description of the fees we
pay to FS Advisor.

From
time to time, FS Advisor may enter into sub-advisory relationships with registered investment advisers that possess skills or attributes that FS Advisor believes will aid it in
achieving our investment objectives. FS Advisor engaged GSO to act as our investment sub-adviser. GSO currently assists FS Advisor in identifying investment opportunities and makes investment
recommendations for consideration and approval by FS Advisor according to guidelines set by FS Advisor. FS Advisor oversees GSO and our day-to-day operations, including the provision of general ledger
accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities and other administrative services. FS Advisor also performs, or oversees the
performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our
shareholders and reports filed with the SEC. In addition, FS Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and
dissemination of reports to our shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

We
reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related
expenses of certain personnel of FS Investments providing administrative services to us on behalf of FS Advisor. The amount of this reimbursement is set at the lesser of (1) FS Advisor's actual
costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative

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service
providers for comparable services in the same geographic location. FS Advisor is required to allocate the cost of such services to us based on factors such as assets, revenues, time
allocations and/or other reasonable metrics. Our board of trustees reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative
expenses among us and certain affiliates of FS Advisor. Our board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and
quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of trustees considers
whether any single third party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of trustees, among other things, compares the total
amount paid to FS Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We do not reimburse FS Advisor for any services for which it
receives a separate fee, or for rent,
depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of FS Advisor.

In
addition, we have contracted with State Street Bank and Trust Company, or State Street, to provide various accounting and administrative services including, but not limited to,
preparing preliminary financial information for review by FS Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information
provided by us and performing testing with respect to RIC compliance.

As
a BDC, we are required to comply with certain regulatory requirements. Also, while we are permitted to finance investments using debt, our ability to use debt will be limited in
certain significant respects pursuant to the 1940 Act. Within the limits of existing regulation, we will adjust our use of debt, according to market conditions, to the level we believe will allow us
to generate maximum risk-adjusted returns. See "Regulation." We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under
Subchapter M of the Code.

Investment Types

Our portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common
equity interests, of privately-held Energy companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers
or other investors in the secondary market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to
best match a project's or company's needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity
interests that pay consistent, high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests
may include interests in MLPs. In connection with certain of our debt investments or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or
options, as additional consideration or otherwise in connection with a restructuring. In addition, a portion of our portfolio may be comprised of minority interests in the form of common or preferred
equity or other equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, in
our target companies, as well as derivatives, including total return swaps and credit default swaps. FS Advisor will seek to tailor our investment focus as market conditions evolve. Depending on
market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or other more opportunistic investments.



Senior debt is situated at the top of the capital structure. Because this debt has priority in payment, it carries the lowest risk among all
investments in a company. Generally, senior
debt in which we may invest is expected to have a maturity period of three to seven years, offer some form of amortization, and have first priority security interests in the assets of the borrower.
Senior debt is comprised of first lien and second lien debt positions. Second lien debt is granted a second priority security interest in the assets of the borrower, which means that any realization
of collateral will generally be applied to pay first lien debt in full before second lien debt positions are paid and the

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value
of the collateral may not be sufficient to repay in full both first lien secured debt and second lien secured debt. Generally, in normalized markets, we expect that the variable interest rate on
our first lien debt typically will range between 4.0% and 9.0% over a standard benchmark, such as the prime rate or the London Interbank Offered Rate, or LIBOR. In normalized markets, we expect that
the variable interest rate on second lien debt will range between 6.0% and 12.0% over a standard benchmark. In addition, we may receive additional returns from any warrants we may receive in
connection with these investments.



In addition to senior debt, we may invest a portion of our assets in subordinated debt of private companies. Subordinated debt usually ranks
junior in priority of payment to first lien and second lien secured loans and is often unsecured, but is situated above preferred equity and common equity in the capital structure. In return for their
junior status compared to first lien and second lien secured loans, subordinated debt typically offers higher returns through both higher interest rates and possible equity ownership in the form of
warrants, enabling the lender to participate in the capital appreciation of the borrower. These warrants typically require only a nominal cost to exercise. We intend to generally target subordinated
debt with interest-only payments throughout the life of the security, with the principal due at maturity. Typically, subordinated debt investments have maturities of five to ten years. Generally, in
normalized markets, we expect these securities to carry a fixed rate or a floating current yield of 8.0% to 12.0% over a standard benchmark. In addition, we may receive additional returns from any
warrants we may receive in connection with these investments. In some cases, a portion of the total interest may accrue or be paid-in-kind, or PIK.



Preferred equity typically includes a stated value or liquidation preference structurally ahead of common equity holders. Holders of preferred
equity can be entitled to a wide range of voting and other rights, depending on the structure of each separate security. Preferred equity can also include a conversion feature whereby the securities
convert into common stock based on established parameters according to set ratios. We seek to invest in primarily income-oriented equity securities of Energy companies in a manner consistent with our
status as a BDC.



We may also invest in other equity securities which are typically structurally subordinate to all other securities within the capital structure
and do not have a stated maturity. As compared to more senior securities, equity interests have greater risk exposure, but also have the potential to provide a higher return. Some of these investments
may take the form of common units in MLPs. MLPs typically pay their unitholders quarterly distributions, offering investors a current yield and the opportunity for a more stable return profile.



We may invest in energy-specific non-operating investments including net profits interests, royalty interests or VPPs. Such non-operating
interests do not include the rights and obligations of operating a mineral property (costs of exploration, development and operation) and do not bear any part of the net losses. Net profits interests
and royalty interests are contractual agreements whereby the holders of such interests are entitled to a portion of the mineral production or proceeds therefrom. A VPP is a type of structured
investment whereby the owner sells a specific volume of production in a field or property to an investor and the investor receives a specific quota of production on a monthly basis in either raw
output or proceeds therefrom. A VPP is typically set to expire after a certain length of time or after a specified aggregate total volume of the commodity has been delivered. If the producer cannot
meet the supply quota for a given period, the supply obligation rolls forward to future cycles until the buyer is made financially whole.

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We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies, to the extent
permitted by the 1940 Act.



We may also invest from time to time in derivatives, such as total return swaps and credit default swaps. We anticipate that any use of
derivatives would primarily be as a substitute
for investing in conventional securities. Any use of derivatives may subject us to additional risks. See "Item 1A. Risk FactorsRisks
Related to Our InvestmentsWe may from time to time enter into total return swaps, credit default swaps or other derivative transactions
which expose us to certain risks, including credit risk, market risk, liquidity risk and other risks similar to those associated with the use of leverage."



We may maintain a certain level of cash or cash equivalent instruments to make follow-on investments, if necessary, in existing portfolio
companies or to take advantage of new opportunities.

Sources of Income

The primary means through which our shareholders may receive a return of value is through interest income, dividends and capital gains generated
by our investments. In addition to these sources of income, we may receive fees paid by our portfolio companies, including one-time closing fees paid at the time each investment is made. Closing fees
typically range from 1.0% to 3.0% of the purchase price of an investment. In addition, we may generate revenues in the form of non-recurring commitment, origination, structuring or diligence fees,
fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees.

Risk Management

We seek to limit the downside potential of our investment portfolio by:



Such
restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights. We may also enter into interest rate
hedging transactions at the sole discretion of FS Advisor. Such transactions will enable us to selectively modify interest rate exposure as market conditions dictate.



Affirmative covenants require borrowers to take actions that are meant to ensure the solvency of the company, facilitate the lender's monitoring
of the borrower and ensure payment of interest and loan principal due to lenders. Examples of affirmative covenants include covenants requiring the borrower to maintain adequate insurance, accounting
and tax records, and to produce frequent financial reports for the benefit of the lender.



Negative covenants impose restrictions on the borrower and are meant to protect lenders from actions that the borrower may take that could harm
the credit quality of the lender's investments.

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Examples
of negative covenants include restrictions on the payment of dividends and restrictions on the issuance of additional debt without the lender's approval. In addition, certain covenants
restrict a borrower's activities by requiring it to meet certain earnings interest coverage ratio and leverage ratio requirements. These covenants are also referred to as financial or maintenance
covenants.

Investment Process

The investment professionals employed by FS Advisor and GSO have spent their careers developing the resources necessary to invest in private
companies. Our current transaction process is highlighted below. See "The Transition of Investment Advisory Services" for information regarding GSO's resignation as our investment
sub-adviser and our potential investment advisory relationship with FS/EIG Advisor.

Our Transaction Process

GRAPHIC



In order to source transactions, FS Advisor currently seeks to leverage GSO's access to transaction flow, along with GSO's trading platform,
which allows for access to the syndicated loan market, which may be a key source of investment opportunities for us. GSO seeks to generate investment opportunities through its trading platform,
through syndicate and club deals, through relationships with investment banks, which may be exclusive to GSO, and, subject to regulatory constraints and the allocation policies of GSO and its
affiliates, as applicable, through GSO's direct origination channels. GSO also relies on its relationships with private equity sponsors, investment banks
and commercial banks to source investment opportunities. With respect to syndicate and club deals, GSO has built a network of relationships with commercial and investment banks, finance companies and
other investment funds as a result of the long track record of its investment professionals in the leveraged finance marketplace. GSO may compensate certain brokers or other financial services firms
out of its own profits or revenues for services provided in connection with the identification of appropriate investment opportunities. With respect to GSO's origination channel, FS Advisor currently
seeks to leverage the global presence of GSO and its long-standing personal contacts within the Energy industry to generate access to directly originated transactions with what we believe to be
attractive investment characteristics.



Initial Review.In its initial review of an investment opportunity to present to FS Advisor, GSO's transaction team examines information
furnished by
the target company and external sources, including rating agencies, if applicable, to determine whether the investment meets our basic investment criteria and other guidelines specified by FS Advisor,
within the context of proper allocation of our portfolio among various issuers and industry sub-sectors, and offers an acceptable probability of attractive returns with identifiable downside risk. For
the majority of securities available on the secondary market, a comprehensive analysis is conducted and continuously maintained by a dedicated GSO research analyst, the results of which are available
for the transaction team to review. In the case of a directly originated transaction, FS Advisor and GSO conduct detailed due diligence investigations as necessary.

Credit Analysis/Due Diligence.Before undertaking an investment, the transaction teams from GSO and FS Advisor conduct a thorough due
diligence
review of the opportunity to ensure the company fits our investment strategy, which may include:



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When
possible, our advisory team seeks to structure transactions in such a way that our target companies are required to bear the costs of due diligence, including those costs related to
any outside consulting work we may require.



Recommendation.FS Advisor engaged GSO to identify and recommend investment opportunities for its approval. GSO seeks to maintain a
defensive
approach toward its investment recommendations by emphasizing risk control in its transaction process, which includes (i) the pre-review of each opportunity
by one of its portfolio managers to assess the general quality, value and fit relative to our portfolio, (ii) where possible, transaction structuring with a focus on preservation of capital in
varying economic environments and (iii) ultimate approval of investment recommendations by GSO's investment committee.

Approval.After completing its internal transaction process, GSO makes formal recommendations for review and approval by FS Advisor. In
connection
with its recommendation, it transmits any relevant underwriting material and other information pertinent to the decision-making process. In addition, GSO makes its staff available to answer inquiries
by FS Advisor in connection with its recommendations. The consummation of a transaction requires unanimous approval of the members of FS Advisor's investment committee.



Portfolio Monitoring.FS Advisor, currently with the help of GSO, monitors our portfolio with a focus toward anticipating negative
credit events. To
maintain portfolio company performance and help to ensure a successful exit, FS Advisor and GSO currently work closely with the lead equity sponsor, loan syndicator, portfolio company management,
consultants, advisers and other security holders to discuss financial position, compliance with covenants, financial requirements and execution of the company's business plan. In addition, depending
on the size, nature and performance of the transaction, we may occupy a seat or serve as an observer on a portfolio company's board of directors or similar governing body.

Typically,
FS Advisor and GSO receive financial reports detailing operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics on a
quarterly basis from our portfolio companies. FS Advisor and GSO use this data, combined with due diligence gained through contact with the company's customers, suppliers, competitors, market research
and other methods, to conduct an ongoing, rigorous assessment of the company's operating performance and prospects. GSO may rely on brokers or other financial services firms that may help identify
potential investments from time to time for assistance in monitoring these investments.

In
addition to various risk management and monitoring tools, FS Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in
our portfolio. FS Advisor uses an investment rating scale of 1 to 5. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsPortfolio
Asset Quality" for a description of the conditions associated with each investment rating.

Valuation Process.Each quarter, we value investments in our portfolio, and such values are disclosed each quarter in reports filed
with the SEC.
Investments for which market quotations are readily available are recorded at such market quotations. With respect to investments for which market quotations are not readily available, our board of
trustees determines the fair value of such investments in good faith, utilizing the input of our valuation committee, FS Advisor and any other professionals or materials that our board of trustees
deems worthy and relevant, including GSO and independent third-

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party
valuation services, if applicable. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting
PoliciesValuation of Portfolio Investments."

Managerial Assistance.As a BDC, we must offer, and provide upon request, managerial assistance to certain of our portfolio companies.
This
assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio
companies and providing other organizational and financial guidance. Depending on the nature of the assistance required, FS Advisor or currently GSO will provide such managerial assistance on our
behalf to portfolio companies that request this assistance. To the extent fees are paid for these services, we, rather than FS Advisor or GSO, will retain any fees paid for such assistance.



While we attempt to invest in securities that may be sold in a privately negotiated over-the-counter market, providing us a means by which we
may exit our positions, we expect that a large portion of our portfolio may not be sold on this secondary market. For any investments that are not able to be sold within this market, we focus
primarily on investing in companies whose business models and growth prospects offer attractive exit possibilities, including repayment of our investments, an initial public offering of equity
securities, a merger, a sale or a recapitalization, in each case with the potential for capital gains.

The Transition of Investment Advisory Services



We currently receive investment advisory and administrative services from FS Advisor pursuant to the April 2011 investment advisory and
administrative services agreement. GSO currently acts as our investment sub-adviser pursuant to the investment sub-advisory agreement. As we previously announced on December 11, 2017, GSO
intends to resign as our investment sub-adviser and terminate the investment sub-advisory agreement effective as of the GSO end date. In connection with GSO's resignation as our investment
sub-adviser, FS Advisor and EIG desire to enter into a relationship whereby FS Advisor and EIG will jointly provide management, investment advisory and administrative services to us through FS/EIG
Advisor, a newly-formed investment adviser jointly operated by FS Advisor and EIG. Accordingly, FS Advisor, EIG and certain other parties have entered into a master agreement setting out the terms of
the relationship between FS Advisor and EIG, or the master agreement. In furtherance thereof, we desire to enter into an investment advisory agreement with FS/EIG Advisor, or the joint advisor
investment advisory agreement, pursuant to which FS/EIG Advisor would act as investment adviser to us.

We
ultimately intend to receive investment advisory services from FS/EIG Advisor pursuant to the joint advisor investment advisory agreement. To effectuate this plan, we are seeking, as
required by the 1940 Act, shareholder approval to enter into the joint advisor investment advisory agreement, which would replace the April 2011 investment advisory and administrative services
agreement with FS Advisor and the investment sub-advisory agreement currently in place with GSO.

Concurrently
with seeking shareholder approval of the joint advisor investment advisory agreement, EIG is seeking exemptive relief, or the EIG exemptive relief, in the form of a new
co-investment exemptive relief order issued by the SEC to EIG that would permit us, following the effectiveness of the joint advisor investment advisory agreement, to co-invest in privately negotiated
investment transactions with certain funds and accounts managed by EIG. There can be no assurance of the timing of the approval of the application or whether the requested EIG exemptive relief will be
granted by the SEC.

The
joint advisor investment advisory agreement will become effective upon the (i) approval of the joint advisor investment advisory agreement by our shareholders and the
(ii) earlier to occur of (a) 60 days after approval by our shareholders of the joint advisor investment advisory agreement and (b) receipt of the EIG exemptive relief from
the SEC.

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In
order to transition our advisory services, FS Advisor, GSO and certain of their affiliates have entered into a transition agreement, which provides that GSO will continue to act as
our investment sub-adviser through the GSO end date and will cooperate with FS Advisor in implementing the transition of investment advisory services from GSO.

FS
Investments and FS Advisor are committed to transition our advisory services as described herein. To help the FS Investments and FS Advisor teams during the transition, EIG's
broker-dealer affiliate will provide certain origination and administrative services to FS Advisor, pursuant to an origination agreement and a servicing agreement, respectively. Both the origination
agreement and the servicing agreement will terminate on the effective date of the joint advisor investment advisory agreement.



EIG Global Energy Partners specializes in private investments in energy and energy-related infrastructure on a global basis and had
$17.7 billion under management as of December 31, 2017. During its 36-year history, EIG has been one of the leading providers of institutional capital to the global energy industry,
providing financing solutions across the balance sheet for companies and projects in the oil and gas, midstream, infrastructure, power and renewables sectors globally. EIG has invested over
$25.3 billion in more than 320 portfolio investments in 36 countries. EIG is headquartered in Washington, D.C., with offices in Houston, London, Sydney, Rio de Janeiro, Hong Kong and Seoul. For
more information, please visitwww.eigpartners.com.



FS/EIG Advisor is a newly-formed Delaware limited liability company, located at 201 Rouse Boulevard, Philadelphia, PA 19112. Prior to the
effectiveness of the joint advisor investment advisory agreement, FS/EIG Advisor will register as an investment adviser with the SEC under the Advisers Act. FS/EIG Advisor will be jointly operated by
FS Advisor and EIG. Our chairman and chief executive officer, Michael C. Forman, will serve as FS/EIG Advisor's chairman and chief executive officer, and William C. Sonneborn, the president of EIG
Global Energy Partners, LLC, an affiliate of EIG, will serve as FS/EIG Advisor's president.

FS/EIG
Advisor's senior management team will have significant experience in private energy lending and private equity energy investing, and will have developed an expertise in using all
levels of a firm's capital structure to produce income-generating investments, while focusing on risk management. The team will also have extensive knowledge of the managerial, operational and
regulatory requirements of publicly registered alternative asset entities, such as BDCs. We believe that the active and ongoing participation by FS Investments, EIG and their respective affiliates in
the credit markets, and the depth of experience and disciplined investment approach of FS/EIG Advisor's management team, will allow FS/EIG Advisor to successfully execute our investment strategies.



The management of our investment portfolio will be the responsibility of FS/EIG Advisor and its investment committee, which will initially be
comprised of Michael Kelly, Brian Gerson, Sean Coleman, R. Blair Thomas, William C. Sonneborn and Randall S. Wade. The investment committee will be responsible for establishing and monitoring our
investment program, developing the portfolio, setting the risk parameters for us and approving all of our investments. Investment decisions will require the unanimous approval of the investment
committee. A team of investment professionals consisting of personnel from FS Investments and EIG will perform services for us on behalf of FS/EIG Advisor, including but not limited to:
(a) sourcing, structuring, underwriting, performing diligence on, executing and monitoring investments; (b) researching, selecting, trading and underwriting new investment opportunities;
(c) investor account management; (d) legal, compliance, finance, accounting, operations and (e) risk management functions. FS Advisor and EIG are collectively responsible for
providing appropriate assets, resources, time and personnel in order to provide to us the services required under the joint advisor investment advisory agreement.

The
base management fee will be reduced from 2.00% under the April 2011 investment advisory and administrative services agreement to 1.75% under the joint advisor investment advisory
agreement.

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While
the April 2011 investment advisory and administrative services agreement provides that the base management fee is 2.00%, effective January 1, 2018, FS Advisor contractually agreed to
permanently waive 0.25% of the base management fee so that the fee received equals 1.75% of our average gross assets. In addition, FS/EIG Advisor will waive incentive fees on income for the 2018
calendar year.

For
additional information, see our definitive proxy statement filed on January 18, 2018.

Financing Arrangements

To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FS Advisor, but in no event may leverage
employed exceed 50% of the value of our assets, as required by the 1940 Act. See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for
additional information regarding our financing arrangements.

Regulation

We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions
between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of our trustees be persons other than "interested
persons," as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC
unless approved by a majority of our outstanding voting securities.

The
1940 Act defines "a majority of the outstanding voting securities" as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than
50% of our outstanding voting securities are present or represented by proxy or (ii) 50% of our voting securities. Furthermore, our investment policy is to invest, under normal circumstances,
at least 80% of our total assets in securities of Energy companies. This investment policy may not be changed without at least 60 days' prior notice to holders of our common shares of any such
change.

We
will generally not be able to issue and sell our common shares at a price per share, after deducting selling commissions and dealer manager fees, that is below our net asset value per
share. See "Item 1A. Risk FactorsRisks Related to Business Development CompaniesRegulations governing our operation as a BDC and RIC will affect our ability to raise,
and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth." We may, however, sell our common shares, or warrants, options or
rights to acquire our common shares, at a price below the then-current net asset value of our common shares if our board of trustees determines that such sale is in our best interests and the best
interests of our shareholders, and our shareholders approve such sale. In addition, we may generally issue new common shares at a price below our net asset value per share in rights offerings to
existing shareholders, in payment of dividends and in certain other limited circumstances.

As
a BDC, we are subject to certain regulatory restrictions in making our investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in
transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, co-invest in transactions where price is the only
negotiated term. Pursuant to the Order and subject to the satisfaction of certain conditions, we may co-invest in certain privately negotiated investment transactions with our co-investment
affiliates. Under the terms of this relief, a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent trustees must make certain conclusions in connection with a
co-investment transaction, including that (1) the terms of the proposed transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not
involve overreaching of us or our shareholders on the part of any person concerned and (2) the transaction is consistent with the interests of our shareholders and is consistent with our
investment objectives and strategy. However, in connection with the potential transition of advisory services from a sub-advisory relationship with GSO to a joint advisory relationship with EIG, and
in an effort to mitigate potential future conflicts of interest, our board of trustees has authorized and directed that we exercise our rights under the Order to decline to participate in any new
potential co-investment transaction pursuant to the Order that would be within the then-current investment objectives and strategies of the FSIC Franchise unless sourced by GSO, EIG or the FS/EIG
Advisor. We may still rely on the Order to participate in certain transactions with our co-investment

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affiliates
with respect to co-investments previously made under the Order. We believe this relief has and may continue to enhance our ability to further our investment objectives and strategy. Because
we did not seek exemptive relief to engage in co-investment transactions with GSO and its affiliates, we will continue to be permitted to co-invest with GSO and its affiliates only in accordance with
existing regulatory guidance (e.g., where price is the only negotiated term). See "Item 1. BusinessThe Transition of Investment Advisory Services" for information regarding
the exemptive relief EIG is seeking with respect to our potential investment advisory relationship with FS/EIG Advisor.



Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company's total assets. The principal categories of qualifying assets
relevant to our business are any of the following:



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In
addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of
securities described in (1), (2) or (3) above.



In order to count portfolio securities as qualifying assets for the purpose of the 70% test, we must either control the issuer of the securities
or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such
securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance
means, among other things, any arrangement whereby the BDC, through its trustees, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel
concerning the management, operations or business objectives and policies of a portfolio company.



Pending investment in other types of "qualifying assets," as described above, our investments may consist of cash, cash equivalents, including
money market funds, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so
that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities
issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to
repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the
proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not
meet the Diversification Tests (as defined below) in order to maintain our qualification as a RIC for U.S. federal income tax purposes as described below under "Taxation as a RIC." Thus,
we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. FS Advisor will monitor the creditworthiness of the counterparties with which we enter into
repurchase agreement transactions.



We are permitted, under specified conditions, to issue multiple classes of debt and one class of shares senior to our common shares if our asset
coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit
any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also
borrow amounts up to 5% of the value of our total assets for temporary purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see "Item 1A. Risk
FactorsRisks Related to Debt Financing" and "Item 1A. Risk FactorsRisks Related to Business Development Companies."



We and FS Advisor have each adopted a code of ethics pursuant to Rule 17j-1 promulgated under the 1940 Act that, among other things,
establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts,
including securities that may be purchased or held by us, so long as such investments are made in accordance with each code's requirements. Our code of ethics was filed as an exhibit to our current
report on Form 8-K filed with the SEC on August 9, 2016. FS Advisor's code of ethics is attached as an exhibit to Post-Effective Amendment No. 5 to our registration statement on
Form N-2 (File No. 333-199777) pertaining to the public offering of our common shares filed on August 10, 2016. Shareholders may also read and copy these codes of ethics at the
SEC's Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. Shareholders may obtain

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information
on the operation of the Public Reference Room by calling the SEC at (202) 551-8090. In addition, each code of ethics is available on our website at www.fsinvestments.comand on the EDGAR Database
on the SEC's Internet site atwww.sec.gov. Shareholders
may also obtain a copy of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference
Section, at 100 F Street, N.E, Washington, D.C. 20549.



We and FS Advisor have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal
securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. Our chief compliance officer and the
chief compliance officer of FS Advisor are responsible for administering these policies and procedures.



We have delegated our proxy voting responsibility to FS Advisor. The proxy voting policies and procedures of FS Advisor are set forth below. The
guidelines are reviewed periodically by FS Advisor and our non-interested trustees, and, accordingly, are subject to change.

As
an investment adviser registered under the Advisers Act, FS Advisor has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes that
it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.

These
policies and procedures for voting proxies for the investment advisory clients of FS Advisor are intended to comply with Section 206 of, and Rule 206(4)-6 promulgated
under, the Advisers Act.

FS
Advisor will vote proxies relating to our securities in the best interest of its clients' shareholders. It will review on a case-by-case basis each proposal submitted for a
shareholder vote to determine its impact on the portfolio securities held by its clients. Although FS Advisor will generally vote against proposals that may have a negative impact on its clients'
portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so.

The
proxy voting decisions of FS Advisor are made by the senior officers who are responsible for monitoring each of its clients' investments. To ensure that its vote is not the product
of a conflict of interest, it will require that: (a) anyone involved in the decision-making process disclose to its chief compliance officer any potential conflict that he or she is aware of
and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from
revealing how FS Advisor intends to vote on a proposal in order to reduce any attempted influence from interested parties.

Shareholders
may obtain information, without charge, regarding how FS Advisor voted proxies with respect to our portfolio securities by making a written request for proxy voting
information to: Chief
Compliance Officer, FS Energy and Power Fund, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112 or by calling us collect at (215) 495-1150.



We will be periodically examined by the SEC for compliance with the 1940 Act.

We
are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited
from protecting any trustee or officer against any liability to us or our shareholders arising from willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office.



We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including
the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act,

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which
imposes a wide variety of regulatory requirements on publicly held companies and their insiders. Many of these requirements affect us. For example:



The
Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We
monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and take actions necessary to ensure that we are in compliance therewith. In addition, we voluntarily comply
with Section 404(b) of the Sarbanes-Oxley Act, and have engaged our independent registered public accounting firm to audit our internal control over financial reporting.

Taxation as a RIC

We have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay
corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To qualify for and maintain our qualification as a RIC, we
must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to maintain RIC tax treatment, we must distribute to our
shareholders, for each tax year, dividends of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary income plus the excess, if any,
of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for distributions paid, or the Annual Distribution Requirement.

If
we:



then
we will not be subject to U.S. federal income tax on the portion of our income or capital gains we distribute (or are deemed to distribute) as dividends to our shareholders. We will be subject to
U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) as dividends to our shareholders.

As
a RIC, we will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute dividends in a timely manner to our shareholders generally of
an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net
income, which is the excess of capital gains over capital losses (as adjusted for certain ordinary losses) for the one-year period ending October 31 of that calendar year and (3) any net
ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax, or the Excise Tax Avoidance
Requirement. Any distribution declared by us during October, November or December of any calendar year, payable to shareholders of record on a specified date in such a month and actually paid during
January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders on December 31 of the calendar year in which the distribution
was declared. We generally will endeavor in each tax year to avoid any material U.S. federal excise tax on our earnings.

We
have previously incurred, and may incur in the future, such excise tax on a portion of our income and capital gains. While we intend to distribute income and capital gains to minimize
exposure to the 4% excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to

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avoid
the imposition of the tax entirely. In that event, we generally will be liable for the excise tax only on the amount by which we do not meet the excise tax avoidance requirement.

In
order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:



A
RIC is limited in its ability to deduct expenses in excess of its investment company taxable income. If our expenses in a given tax year exceed our investment company taxable income,
we may experience a net operating loss for that tax year. However, a RIC is not permitted to carry forward net operating losses to subsequent tax years and such net operating losses do not pass
through to its stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, the
excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital
gains, indefinitely. Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute
and that is taxable to our stockholders even if such taxable income is greater than the net income we actually earn during those years.

For
U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold
debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt
instruments that were issued with warrants), we must include in income each tax year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash
representing such income is received by us in the same tax year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that
are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income
required to be included in taxable income prior to receipt of cash.

We
invest a portion of our net assets in below investment grade instruments. Investments in these types of instruments may present special tax issues for us. U.S. federal income tax
rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or
worthless instruments, how payments received on instruments in default should be allocated between principal and income and
whether exchanges of debt obligations in a bankruptcy or workout context are taxable. We will address these and other issues to the extent necessary in order to seek to ensure that we distribute
sufficient income to avoid any material U.S. federal income or excise tax.

Because
any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a
distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have

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received
any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under Subchapter M of the Code.
We may have to sell or otherwise dispose of some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment
opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income
tax.

Although
we do not presently expect to do so, we are authorized to borrow funds and to sell or otherwise dispose of assets in order to satisfy distribution requirements. However, under
the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain "asset coverage" tests are met. See
"RegulationSenior Securities." Moreover, our ability to sell or otherwise
dispose of assets to meet the Annual Distribution Requirement may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC,
including the Diversification Tests. If we sell or otherwise dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such
dispositions at times that, from an investment standpoint, are not advantageous.

To
satisfy the Diversification Tests at the close of each quarter of our tax year, we will generally have invested no more than 25% of the value of our total assets in MLPs and certain
other "qualified publicly traded partnerships". As a limited partner in the MLPs in which we seek to invest, we will be deemed to have received our share of income, gains, losses, deductions, and
credits from those MLPs. Historically, a significant portion of income from MLPs has been offset by tax deductions. As a result, this income has been significantly lower than cash distributions paid
by MLPs. The percentage of an MLP's income and gains which is offset by tax deductions, losses and credits will fluctuate over time for various reasons. A significant slowdown in acquisition activity
or capital spending by MLPs held in our portfolio could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in an increase in our investment company
taxable income that we are required to distribute to shareholders to satisfy the Annual Distribution Requirement or the Excise Tax Avoidance Requirement or to eliminate our liability for U.S. federal
income tax. If our income from our investments in MLPs exceeds the cash distributions received from such investments, we may need to obtain cash from other sources in order to satisfy the Annual
Distribution Requirement. If we are unable to obtain cash from other sources, we may fail to qualify for RIC tax treatment and become subject to corporate-level U.S. federal income tax. We may
also recognize for U.S. federal income tax purposes gain in excess of cash proceeds upon the sale of an interest in an MLP. Any such gain may need to be distributed (or deemed distributed) in order to
avoid liability for corporate-level U.S. federal income taxes on such gain.

A
portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure our investment in the portfolio company. Any such
transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future non-cash income. Any such transaction could also result in our receiving assets
that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise would not count toward satisfying the Diversification Tests.

Some
of the income that we might otherwise earn, such as fees for providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or
restructuring of a portfolio investment, or income recognized from an equity investment in an operating partnership, may not satisfy the 90% Income Test. To manage the risk that such income might
disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S. corporations for entity-level tax purposes may be employed to earn such income and
(if applicable) hold the related asset. Such subsidiary entities will be required to pay U.S. federal income tax on their earnings, which ultimately will reduce the yield to our shareholders on such
fees and income.

Competition

Our primary competitors for investments include other BDCs and investment funds (including private equity funds, mezzanine funds and CLO funds).
In addition, alternative investment vehicles,

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such
as hedge funds, have begun to invest in areas in which they have not traditionally invested, including making investments in middle market private U.S. companies. We also compete with traditional
financial services companies such as commercial banks. We believe we will be able to compete with these entities for financing opportunities on the basis of, among other things, the experience of FS
Advisor's senior management team and GSO's investment team. Furthermore, while we believe that regulatory changes and other factors have diminished the role of traditional financial institutions and
certain other capital providers in providing financing to middle market private U.S. companies, we are not certain whether this trend will continue as a result of the potentially changing regulatory
landscape due to the presidential administration. For additional information, see "Potential Market Opportunity" and "Potential Competitive Strengths."

Many
of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower
cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These
characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than us. Furthermore, many
of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC. For additional information concerning the
competitive risks we face, see "Item 1A.
Risk FactorsRisks Related to Our Business and StructureWe may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce
returns and result in losses."

Employees

We do not currently have any employees. Each of our executive officers is a principal, officer or employee of FS Advisor, which manages and
oversees our investment operations. In the future, FS Advisor may retain additional investment personnel based upon its needs.

Available Information

For so long as our bylaws require, we will distribute to all shareholders of record our quarterly report on Form 10-Q within
60 days after the end of each fiscal quarter and our annual report on Form 10-K within 120 days after the end of each fiscal year. We also file with or submit to the SEC annual,
quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. This information is available free of charge by calling us
collect at (215) 495-1150 or on our website atwww.fsinvestments.com. Information contained on our website is not incorporated into this annual
report on Form 10-K and such information should not be considered to be part of this annual report on Form 10-K.

Shareholders
also may inspect and copy these reports, proxy statements and other information, as well as this annual report on Form 10-K and related exhibits and schedules, at the
Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Such information is also available from the EDGAR database on the SEC's web site at www.sec.gov.
Shareholders also can obtain copies of such information, after paying a duplicating fee, by sending a request by e-mail to publicinfo@sec.govor by writing the SEC's Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange
Commission, Washington, D.C. 20549. Shareholders may obtain information on the operation of the SEC's Public Reference Room by calling the SEC at (202) 551-8090.

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Item 1A.    Risk Factors.

Investing in our common shares involves a number of significant risks. In addition to the other information contained in
this annual report on Form 10-K, investors should consider carefully the following information before making an investment in our common shares. If any of the following events occur, our
business, financial condition and results of operations could be materially and adversely affected. In such case, the net asset value of our common shares could decline or the value of our debt our
equity investments may decline, and investors may lose all or part of their investment.

Risks Related to Our Business and Structure

Our board of trustees may change our investment policy by providing our shareholders with 60 days'
prior notice, or may modify or waive our current operating policies and strategy without prior notice or shareholder approval, the effects of which may be adverse.

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This
investment policy may be changed by our board of trustees if we provide our shareholders with at least 60 days' prior notice. In addition, our board of trustees has the authority to modify or
waive our current operating policies, investment criteria and strategy without prior notice and without shareholder approval. We cannot predict the effect any changes to our investment policy, current
operating policies, investment criteria and strategy would have on our business, net asset value, operating results and the value of our common shares. However, the effects might be adverse, which
could negatively impact our ability to pay distributions to shareholders and cause shareholders to lose all or part of their investment. Finally, because our common shares are not expected to be
listed on a national securities exchange for the foreseeable future, shareholders will be limited in their ability to sell their common shares in response to any changes in our investment policy,
operating policies, investment criteria or strategy.

Our ability to achieve our investment objectives depends on FS Advisor's and GSO's ability to manage and
support our investment process. If either our agreement with FS Advisor or FS Advisor's agreement with GSO were to be terminated, or if either FS Advisor or GSO were to lose any members of their
respective senior management teams, our ability to achieve our investment objectives could be significantly harmed.

Because we have no employees, we depend on the investment expertise, skill and network of business contacts of FS Advisor and currently GSO. FS
Advisor, with the assistance of GSO, evaluates, negotiates, structures, executes, monitors and services our investments. Our future success depends to a significant extent on the continued service and
coordination of FS Advisor and GSO, as well as their respective senior management teams. The departure of any members of FS Advisor's senior management team could have a material adverse effect on our
ability to achieve our investment objectives. Likewise, the departure of any key employees of GSO or termination of key relationships may impact its ability to render services to us under the terms of
its investment sub-advisory agreement with FS Advisor.

Our
ability to achieve our investment objectives depends on FS Advisor's ability, with the assistance of GSO, to identify, analyze, invest in, finance and monitor companies that meet our
investment criteria. FS Advisor's capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable
terms depend on the employment of investment professionals in an adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objectives,
FS Advisor may
need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. FS Advisor may not be able to find investment professionals in
a timely manner or at all. Failure to support our investment process could have a material adverse effect on our business, financial condition and results of operations.

In
addition, the investment advisory and administrative services agreement that FS Advisor has entered into with us, as well as the investment sub-advisory agreement that FS Advisor has
entered into with GSO, have termination provisions that allow the parties to terminate the agreements without penalty. The investment advisory and administrative services agreement may be terminated
at any time, without penalty, by FS Advisor, upon 120 days' notice to us. The investment sub-advisory agreement may be terminated at any time, without the payment of any penalty, upon
60 days' written notice by

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GSO
or, if our board of trustees or the holders of a majority of our outstanding voting securities determine that the investment sub-advisory agreement with GSO should be terminated, by FS Advisor. If
either agreement is terminated, it may adversely affect the quality of our investment opportunities. In addition, in the event such agreements are terminated, it may be difficult for us to replace FS
Advisor or for FS Advisor to replace GSO. Furthermore, the termination of either of these agreements may adversely impact the terms of any financing arrangement into which we may enter, which could
have a material adverse effect on our business and financial condition. It is currently contemplated that the investment sub-advisory agreement with GSO will terminate on the GSO end date and that
subject to certain conditions, we will enter into the proposed joint advisor investment advisory agreement with FS/EIG Advisor. GSO intends to resign as our investment sub-adviser effective as of the
GSO end date regardless of whether the joint advisor investment advisory agreement with FS/EIG Advisor has become effective. See "There can be no assurance that the proposed joint advisor
investment advisory agreement with FS/EIG Advisor will receive shareholder approval or go into effect." In the event that the proposed joint advisor investment advisory agreement with FS/EIG Advisor
replaces the April 2011 investment advisory and administrative services agreement and the investment sub-advisory agreement with GSO as contemplated, at the time of such replacement, all of the risk
factors identified in Item 1A of this annual report on Form 10-K that relate to GSO will also be applicable to FS/EIG Advisor.

There can be no assurance that the proposed joint advisor investment advisory agreement with FS/EIG Advisor
will receive shareholder approval or go into effect.

We ultimately intend to receive investment advisory services from FS/EIG Advisor pursuant to the joint advisor investment advisory agreement. On
January 18, 2018, we filed a definitive proxy statement soliciting shareholder approval of the joint advisor investment advisory agreement, which would replace the April 2011 investment
advisory and administrative services agreement and the investment sub-advisory agreement. The effectiveness of the joint advisor investment advisory agreement is subject to various conditions,
including shareholder approval thereof. If any of these conditions are not satisfied or (to the extent permitted) waived, the joint advisor investment advisory agreement may not go into effect. As a
result, the failure of the joint advisor investment advisory agreement to go into effect could adversely affect our business, financial condition, results of operations or ability to achieve our
investment objectives.

There can be no assurance of the timing of the approval of the application for the EIG exemptive relief or
that the EIG exemptive relief will be granted by the SEC.

Concurrently with our soliciting shareholder approval of the joint advisor investment advisory agreement, EIG is seeking the EIG exemptive
relief in the form of a new co-investment exemptive relief order issued by the SEC to EIG that would permit us, following the effectiveness of the joint advisor investment advisory agreement, to
co-invest in privately negotiated investment transactions with certain accounts managed by EIG. There can be no assurance of the timing of the approval of the application for the EIG exemptive relief
or whether the requested EIG exemptive relief will be granted by the SEC.

FS/EIG Advisor will be a newly-formed investment adviser without a track record of acting as an investment
adviser to a BDC, and any failure by FS/EIG Advisor to manage and support our investment process may hinder the achievement of our investment objectives.

Because FS/EIG Advisor will be a newly-formed investment adviser jointly operated by FS and EIG, FS/EIG Advisor will have no prior experience
acting as an investment adviser to a BDC. The 1940 Act and the Code impose numerous constraints on the operations of BDCs that do not apply to other investment vehicles. While both FS Advisor and EIG
have individually acted as investment advisers to BDCs previously, FS/EIG Advisor's lack of experience in managing a portfolio of assets under the constraints of the 1940 Act and the Code may hinder
FS/EIG Advisor's ability to take advantage of attractive investment opportunities and, as a result, may adversely affect our ability to achieve our investment objectives. FS Advisor's and EIG's
individual track records and achievements are not necessarily indicative of the future results they will achieve as a joint investment adviser. Accordingly, we can offer no assurance that we will
replicate the historical performance of other

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investment
companies with which FS Advisor and EIG have been affiliated, and we caution that our investment returns could be lower than the returns achieved by such other companies.

The transactions contemplated by the master agreement may not be consummated and may not deliver the benefits
we anticipate.

In connection with GSO's resignation as our investment sub-adviser, FS Advisor and EIG desire to enter into a relationship whereby FS Advisor
and EIG will jointly provide
management, investment advisory and administrative services to us through FS/EIG Advisor. Accordingly, FS Advisor, EIG and certain other parties have entered into a master agreement setting out the
terms of the relationship between FS Advisor and EIG. We are devoting a significant portion of our time and resources to consummating the transactions contemplated by the master agreement. However,
there can be no assurance that such activities will result in the consummation of the transactions. Additionally, even if we are able to consummate the transactions, the transactions may not deliver
the benefits we anticipate.

The transactions contemplated by the transition agreement may not be consummated, and the transition of our
investment advisory services may not be completed or may not deliver the benefits we anticipate.

In order to transition our investment advisory services, on December 10, 2017, FS Advisor, GSO and certain of their respective affiliates
entered into a transition agreement, which provides that GSO will continue to act as our investment sub-adviser through the GSO end date and will cooperate with FS Advisor in implementing the
transition of investment advisory services from GSO for us and several other BDCs. The transition of investment advisory services is subject to certain conditions that may not occur, and if we do not
consummate the transactions contemplated by the transition agreement, we may not successfully complete the proposed transition of investment advisory services and/or realize the anticipated benefits
of the transition.

We
are devoting a significant portion of our time and resources to consummating the transactions contemplated by the transition agreement. However, there can be no assurance that such
activities will result in the consummation of the transactions or the completion of the proposed transition of investment advisory services. Additionally, even if we are able to consummate the
transactions and complete the transition, the transition may not deliver the benefits we anticipate.

Because our business model depends to a significant extent upon relationships with private equity sponsors,
investment banks and commercial banks, the inability of FS Advisor and GSO to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could
adversely affect our business.

If FS Advisor or GSO fails to maintain its existing relationships with private equity sponsors, investment banks and commercial banks on which
they rely to provide us with potential investment opportunities or develop new relationships with other sponsors or sources of investment opportunities, we may not be able to grow our investment
portfolio. In addition, individuals with whom FS Advisor and GSO have relationships generally are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that
such relationships will generate investment opportunities for us. GSO may compensate certain brokers or other financial services firms out of GSO's own profits or revenues for services provided in
connection with the identification of appropriate investment opportunities.

Our financial condition and results of operations depend on our ability to manage future growth effectively.

Our ability to achieve our investment objectives depends on our ability to acquire suitable investments and monitor and administer those
investments, which depends, in turn, on our investment adviser's ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing
this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of FS Advisor to provide competent, attentive and
efficient services to us. Our executive officers and the members of FS Advisor's investment committee have substantial responsibilities in connection with their roles at FS Investments and with the
other entities affiliated with FS Investments, as well as responsibilities under the investment advisory and administrative

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services
agreement. They may also be called upon to provide significant managerial assistance to certain of our portfolio companies. These demands on their time, which will increase as the number of
investments grow, may distract them or slow the rate of investment. In order to grow, FS Advisor will need to hire, train, supervise, manage and retain new employees. However, we cannot assure you
that FS Advisor will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of
operations.

We may face increasing competition for investment opportunities, which could delay deployment of our capital,
reduce returns and result in losses.

We compete for investments with other BDCs and investment funds (including private equity funds, mezzanine funds and collateralized loan
obligation, or, CLO, funds), as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds,
have begun to invest in areas in which they have not traditionally invested, including making investments in middle market private U.S. companies, which we define as companies with annual revenue of
$50 million to $2.5 billion at the time of investment. As a result of these new entrants, competition for investment opportunities in middle-market private U.S. companies may intensify.
Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital
and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could
allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do. We may lose investment
opportunities if we do not match our competitors' pricing, terms and structure. If we are forced to match our competitors' pricing, terms and structure, we may not be able to achieve acceptable
returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the market for
investments in middle market private U.S. companies is underserved by traditional commercial banks and other financial sources. A significant increase in the number and/or the size of our competitors
in this target market could force us to accept less attractive investment terms. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory
restrictions that the 1940 Act imposes on us as a BDC.

A significant portion of our investment portfolio is and will be recorded at fair value as determined in good
faith by our board of trustees and, as a result, there is and will be uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at
fair value as determined in good faith by or under the direction of our board of trustees. There is not a public market for the securities of the privately-held companies in which we invest. Many of
our investments are not publicly-traded or actively-traded on a secondary market but are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors or are
not traded at all. As a result, we value these securities quarterly at fair value as determined in good faith by our board of trustees.

Certain
factors that may be considered in determining the fair value of our investments include dealer quotes for securities traded on the secondary market for institutional investors,
the nature and realizable value of any collateral, the portfolio company's earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business,
comparison to comparable publicly-traded companies, discounted cash flows and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies,
are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a
ready market for these non-traded securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the
value that we may ultimately realize upon the sale of one or more of our investments.

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There is a risk that investors in our common shares may not receive distributions or that our distributions
may not grow over time.

We cannot assure shareholders that we will achieve investment results that will allow us to make a specified level of cash distributions or
year-to-year increases in cash distributions. All distributions will be paid at the discretion of our board of trustees and will depend on our earnings, our net investment income, our financial
condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our board of trustees may deem relevant from time to time. In addition, due to the asset
coverage test applicable to us as a BDC, we may be limited
in our ability to make distributions. See "Item 1.
BusinessRegulationSenior Securities."

Our distribution proceeds have exceeded and in the future may exceed our earnings, particularly during the
period before we have substantially invested the net proceeds from our continuous public offering. Therefore, portions of the distributions that we make may represent a return of capital to
shareholders, which will lower their tax basis in their common shares.

We may pay all or a substantial portion of our distributions from the proceeds of our continuous public offering or from borrowings in
anticipation of future cash flow, which may constitute a return of shareholders' capital and will lower such shareholders' tax basis in their common shares. A return of capital generally is a return
of a shareholder's investment rather than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses payable in connection with the
offering, including any fees payable to FS Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder's cost basis in our common shares, and will result in
a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold.

Changes in laws or regulations governing our operations or the operations of our business partners may
adversely affect our business or cause us to alter our business strategy.

We, our portfolio companies and our business partners are subject to regulation at the local, state and federal level. New legislation may be
enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our shareholders,
potentially with retroactive effect. Changes in laws or regulations governing the operations of those with whom we do business, including selected broker-dealers and other financial representatives
selling our common shares, could also have a material adverse effect on our business, financial condition and results of operations. In addition, over the last several years there has been an increase
in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new
regulation. New legislation, interpretations, rulings or regulations could require changes to certain business practices of us or our portfolio companies, negatively impact the operations, cash flows
or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

In
addition, any changes to the laws and regulations governing our operations, including with respect to permitted investments, may cause us to alter our investment strategy to avail
ourselves of new or different opportunities or make other changes to our business. Such changes could result in material differences to our strategy and plans as set forth in this annual report on
Form 10-K and may result in our investment focus shifting from the areas of expertise of FS Advisor and GSO to other types of investments in which FS Advisor and GSO may have less expertise or
little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of a shareholder's investment.

As a public company, we are subject to regulations not applicable to private companies, such as provisions of
the Sarbanes-Oxley Act. Efforts to comply with such regulations will involve significant expenditures, and non-compliance with such regulations may adversely affect us.

As a public company, we are subject to regulations not applicable to private companies, including provisions of the Sarbanes-Oxley Act and the
related rules and regulations promulgated by the SEC. Our management is required to report on our internal control over financial reporting pursuant to

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Section 404
of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a
quarterly and annual basis, to evaluate and disclose changes in our internal control over financial reporting. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from
our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

We
incur significant expenses in connection with our compliance with the Sarbanes-Oxley Act and other regulations applicable to public companies, which may negatively impact our
financial performance and our ability to make distributions. Compliance with such regulations also requires a significant amount of our management's time and attention. For example, we cannot be
certain as to the timing of the completion of our Sarbanes-Oxley mandated evaluations, testings and remediation actions, if any, or the impact of the same on our operations, and we may not be able to
ensure that the process is effective or that our internal control over financial reporting are or will be deemed effective in the future. In the event that we are unable to maintain an effective
system of internal control and maintain compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.

Economic activity in the United States was adversely impacted by the global financial crisis of 2008 and
future recessions, downturns, disruptions or instability could have a materially adverse effect on our business.

From time to time, the global capital markets may experience periods of disruption and instability, which could cause disruptions in liquidity
in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major financial
institutions. Despite actions of U.S. and foreign governments, these events could contribute to worsening general economic conditions that materially and adversely impact the broader financial and
credit markets and reduce the availability of debt and equity capital for the market as a whole and financial services firms in particular.

Beginning
in the third quarter of 2007, global credit and other financial markets suffered substantial stress, volatility, illiquidity and disruption. These forces reached extraordinary
levels in late 2008, resulting in the bankruptcy of, the acquisition of, or government intervention in the affairs of several major domestic and international financial institutions. In particular,
the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and
invest. We believe that such value declines were exacerbated by widespread forced liquidations as leveraged holders of financial assets, faced with declining prices, were compelled to sell to meet
margin requirements and maintain compliance with applicable capital standards. Such forced liquidations also impaired or eliminated many investors and investment vehicles, leading to a decline in the
supply of capital for investment and depressed pricing levels for many assets. These events significantly diminished overall confidence in the debt and equity markets, engendered unprecedented
declines in the values of certain assets, and caused extreme economic uncertainty.

Deterioration
of economic and market conditions in the future could negatively impact credit spreads as well as our ability to obtain financing, particularly from the debt markets.

Future downgrades of the U.S. credit rating and global economic uncertainty could negatively impact our
business, financial condition and results of operations.

In August 2011, Standard & Poor's Ratings Services, or S&P, lowered its long-term sovereign credit rating on the U.S. from "AAA" to
"AA+," which was affirmed by S&P in June 2015. In January 2012, S&P lowered its long-term sovereign credit rating for France, Italy, Spain and six other European countries, which negatively impacted
global markets and economic conditions. In addition, in April 2012, S&P further lowered its long-term sovereign credit rating for Spain. Recent U.S. budget deficit concerns, together with signs of
deteriorating sovereign debt conditions in Europe, have increased the possibility of additional credit-rating downgrades and economic slowdowns. The impact of any further downgrade to the U.S.
government's sovereign credit rating, or its perceived creditworthiness, and the impact of the current crisis in Europe with respect to the ability of certain European Union countries to continue to
service their sovereign debt obligations are inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. In addition, the economic downturn and
the significant government interventions into the financial markets and fiscal stimulus

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spending
over the last several years have contributed to significantly increased U.S. budget deficits. There can be no assurance that future fiscal or monetary measures to aid economic recovery will
be effective. These developments and reactions of the credit markets toward these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to obtain
debt financing on favorable terms. In addition, any adverse economic conditions resulting from any further downgrade of the U.S. government's sovereign credit rating or the economic crisis in Europe
could have a material adverse effect on our business, financial condition and results of operations.

Declines in market values or fair market values of our investments could result in significant net unrealized
depreciation of our portfolio, which, in turn, would reduce our net asset value.

Under the 1940 Act, we are required to carry our investments at market value or, if there is no readily available market value, at fair value as
determined in good faith by our board of trustees. While most of our investments will not be publicly traded, applicable accounting standards require us to assume as part of our valuation process that
our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our
investments, even if unrealized, must be reflected in our financial statements for the applicable period as unrealized depreciation, which could result in significant reductions to our net asset value
for a given period.

The impact on us of recent financial reform legislation, including the Dodd-Frank Act, is uncertain.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, or the Dodd-Frank Act, institutes a wide range of reforms that will
have an impact on financial institutions. Many of the requirements called for in the Dodd-Frank Act will be implemented over time, most of which will be subject to implementing regulations over the
course of several years. In addition, the presidential administration has announced its intention to repeal, amend or replace portions of the Dodd-Frank and the regulations implemented thereunder.
Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented, repealed, amended or replaced by the various regulatory agencies and through
regulations, the full impact such requirements will have on our business, results of operations or financial condition is unclear. The changes resulting from the Dodd-Frank Act and any changes to the
regulations already implemented thereunder may require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and
regulatory requirements. Failure to comply with any such laws, regulations or principles, or changes thereto, may negatively impact our business, results of operations and financial condition. While
we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially
adverse to us and our shareholders.

Future legislation or rules could modify how we treat derivatives and other financial arrangements for
purposes of our compliance with the leverage limitations of the 1940 Act.

Future legislation or rules may modify how we treat derivatives and other financial arrangements for purposes of our compliance with the
leverage limitations of the 1940 Act. For example, the SEC proposed a new rule in December 2015 that is designed to enhance the regulation of the use of derivatives by registered investments companies
and business development companies. While the December 2015 rule appears not to be moving toward adoption, the proposed rule, if adopted, or any future legislation or rules, may modify how leverage is
calculated under the 1940 Act and, therefore, may increase or decrease the amount of leverage currently available to us under the 1940 Act, which may be materially adverse to us and our shareholders.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make
investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of
realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors,

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results
for any previous period should not be relied upon as being indicative of performance in future periods.

If we, our affiliates and our and their respective third-party service providers are unable to maintain the
availability of electronic data systems and safeguard the security of data, our ability to conduct business may be compromised, which could impair our liquidity, disrupt our business, damage our
reputation or otherwise affect our business.

Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and
data from unauthorized access, attack, or damage. We, our affiliates and our and their respective third-party service providers are subject to cybersecurity risks. Cybersecurity risks have
significantly increased in recent years and, while we have not experienced any material losses relating to cyber attacks or other information security breaches, we could suffer such losses in the
future. Our, our affiliates and our and their respective third-party service providers' computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other
malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize confidential and other information, including nonpublic
personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or
the operations of our affiliates and our and their respective third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or
otherwise adversely affect our business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in
cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures
and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks.

Risks Related to FS Advisor, GSO and Their Respective Affiliates

FS Advisor and its affiliates, including our officers and some of our trustees, face conflicts of interest
caused by compensation arrangements with us and our affiliates, which could result in actions that are not in the best interests of our shareholders.

FS Advisor and its affiliates receive substantial fees from us in return for their services, and these fees could influence the advice provided
to us. Among other matters, the compensation arrangements could affect their judgment. In addition, the decision to utilize leverage has increased our assets and, as a result, has increased the amount
of base management fees payable to FS Advisor.

We may be obligated to pay FS Advisor incentive compensation even if we incur a net loss due to a decline in
the value of our portfolio.

Our investment advisory and administrative services agreement entitles FS Advisor to receive incentive compensation on income regardless of any
capital losses. In such case, we may be required to pay FS Advisor incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for
that quarter.

Any
incentive fee payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a
portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become
uncollectible. FS Advisor is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by
an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

For
U.S. federal income tax purposes, we will be required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in some circumstances in
which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting
the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. This difficulty in

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making
the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some of our
investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain
cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

There may be conflicts of interest related to obligations FS Advisor's and GSO's senior management and
investment teams have to our affiliates and to other clients.

The members of the senior management and investment teams of both FS Advisor and GSO serve or may serve as officers, directors or principals of
entities that operate in the same or a related line of business as we do, or of investment vehicles managed by the same personnel. For example, the officers, managers and other personnel of FS Advisor
also serve in similar capacities for the investment advisers to the other funds in the Fund Complex, and may serve in similar or other capacities for the investment advisers to future investment
vehicles affiliated with FS Investments. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not
be in our best interests or in the best interest of our shareholders. Our investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment
vehicles. For example, we rely on FS Advisor to manage our day-to-day activities and to implement our investment strategy. FS Advisor and certain of its affiliates are presently, and plan in the
future to continue to be, involved with activities which are unrelated to us. As a result of these activities, FS Advisor, its employees and certain of its affiliates will have conflicts of interest
in allocating their time between us and other activities in which they are or may become involved, including the management of other entities affiliated with FS Investments. FS Advisor and its
employees will devote only as much of its or their time to our business as FS Advisor and its employees, in their judgment, determine is reasonably required, which may be substantially less than their
full time.

Furthermore,
GSO, on which FS Advisor currently relies to assist it in identifying investment opportunities and making investment recommendations, has similar conflicts of interest. GSO
or its subsidiary, GDFM, currently serves as investment sub-adviser to FS Investments' four other affiliated BDCs and FS Investments' two affiliated closed-end management investment companies. GSO,
its affiliates and their respective members, partners, officers and employees will devote as much of their time to our activities as they deem necessary and appropriate. GSO and its affiliates are not
restricted from forming additional investment vehicles, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in
competition with us and/or may involve substantial time and resources of GSO. Also, in connection with such business activities, GSO and its affiliates may have existing business relationships or
access to material, non-public information that may prevent it from recommending investment opportunities that would otherwise fit within our investment objectives. All of these factors could be
viewed as creating a conflict of interest in that the time, effort and ability of the members of GSO, its affiliates and their officers and employees will not be devoted exclusively to our business
but will be allocated between us and the management of the monies of other advisees of GSO and its affiliates.

The time and resources that individuals employed by FS Advisor and GSO devote to us may be diverted, and we
may face additional competition due to the fact that individuals employed by FS Advisor and GSO are not prohibited from raising money for or managing another entity that makes the same types of
investments that we target.

Neither FS Advisor nor GSO, or individuals employed by FS Advisor or GSO, are prohibited from raising money for and managing another investment
entity that makes the same types of investments as those we target. For example, FS Energy Advisor, LLC, an affiliate of FS Advisor, manages FS Energy Total Return Fund, an interval fund with
an investment strategy that focuses on investing 80% of its total assets in natural resource companies. As a result, the time and resources that these individuals may devote to us may be diverted. In
addition, we may compete with any such investment entity for the same investors and investment opportunities. In an order dated June 4, 2013, the SEC granted exemptive relief permitting us,
subject to the satisfaction of certain conditions, to co-invest in certain

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privately
negotiated investment transactions with our co-investment affiliates. Because we did not seek exemptive relief to engage in co-investment transactions with GSO and its affiliates, we will
continue to be permitted to co-invest with GSO and its affiliates only in accordance with existing regulatory guidance (e.g., where price is the only negotiated term). Affiliates of GSO, whose
primary businesses include the origination of investments, engage in investment advisory business with accounts that compete with us.

Our incentive fee may induce FS Advisor to make, and GSO to recommend, speculative investments.

The incentive fee payable by us to FS Advisor may create an incentive for it to enter into investments on our behalf that are risky or more
speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to FS Advisor is determined may encourage it to use leverage to increase
the return on our investments. In addition, the fact that our base management fee is payable based upon our gross assets, which would include any borrowings for investment purposes, may encourage FS
Advisor to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common shares. Such
a practice could result in our investing in more speculative securities than would otherwise be in our best interests, which could result in higher investment losses, particularly during cyclical
economic downturns. In addition, since GSO will receive a portion of the advisory fees paid to FS Advisor, GSO may have an incentive to recommend investments that are riskier or more speculative.

FS Advisor's liability is limited under our current investment advisory and administrative services
agreement, and we are required to indemnify FS Advisor against certain liabilities, which may lead it to act in a riskier manner on our behalf than it would when acting for its own account.

Pursuant to our current investment advisory and administrative services agreement, FS Advisor and its officers, managers, partners, members (and
their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with FS Advisor will not be liable to us for their acts under
our current investment advisory and administrative services agreement, absent willful misfeasance, bad faith or gross negligence in the performance of their duties. We have agreed to indemnify, defend
and protect FS Advisor and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity
affiliated with FS Advisor with respect to all damages, liabilities, costs and expenses resulting from acts of FS Advisor not arising out of willful misfeasance, bad faith or gross negligence in the
performance of their duties under our investment advisory and administrative services agreement. These protections may lead FS Advisor to act in a riskier manner when acting on our behalf than it
would when acting for its own account.

Risks Related to Business Development Companies

The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from
investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status
as a BDC.

As a BDC, we may not acquire any assets other than "qualifying assets" unless, at the time of such acquisition, at least 70% of our total assets
are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Conversely, if we fail to invest a
sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.
Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of
investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be
significantly less than the current value of such investments.

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Failure to maintain our status as a BDC would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially
more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.

Regulations governing our operation as a BDC and a RIC will affect our ability to raise, and the way in which
we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

As a result of our need to satisfy the Annual Distribution Requirement in order to maintain RIC tax treatment under Subchapter M of the
Code, we may need to periodically access the capital markets to raise cash to fund new investments. We may issue "senior securities," as defined in the 1940 Act, including issuing preferred shares,
borrowing money from banks or other financial institutions or issuing debt securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such
incurrence or issuance. Our ability to issue certain other types of securities is also limited. Compliance with these limitations on our ability to raise capital may unfavorably limit our investment
opportunities and may reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.

We
expect to continue to borrow for investment purposes. If the value of our assets declines, we may be unable to satisfy the asset coverage test, which would prohibit us from paying
distributions and as a result could cause us to be subject to U.S federal corporate income or excise taxation, regardless of the amount of distributions paid. If we cannot satisfy the asset coverage
test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

Future legislation may allow us to incur additional leverage.

As a BDC, we are generally not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total
borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). Recent legislation introduced in the U.S. House of Representatives, if passed, would modify
this section of the 1940 Act to permit an increase in the amount of debt that BDCs could incur by modifying the percentage from 200% to 150%. Even if this legislation does not pass, similar
legislation may pass that permits us to incur additional leverage under the 1940 Act. As a result, we may be able to incur additional indebtedness in the future, and, therefore, the risk of an
investment in us may increase.

Our ability to enter into transactions with our affiliates is restricted.

We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a
majority of the independent members of our board of trustees and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our
affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of our board of trustees. The 1940
Act also prohibits certain "joint" transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior
approval of our board of trustees and, in some cases, the SEC. In an order dated June 4, 2013, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions,
to co-invest in certain privately negotiated investment transactions with our co-investment affiliates. If a person acquires more than 25% of our voting securities, we will be prohibited from buying
or selling any security from or to such person or certain of that person's affiliates, or entering into prohibited joint transactions with such persons to the extent not covered by our exemptive
relief, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or trustees or their affiliates. As a result of these restrictions, we may
be prohibited from buying or selling any security from or to any portfolio company of a private equity fund managed by FS Advisor without the prior approval of the SEC, which may limit the scope of
investment opportunities that would otherwise be available to us.

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We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity
financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.

Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require debt or equity financing to operate.
We may also need to access the capital markets to refinance existing debt obligations to the extent maturing obligations are not repaid with cash flows from operations. In order to maintain RIC tax
treatment, we must make distributions to our shareholders each tax year on a timely basis generally of an amount at least equal to 90% of our investment company taxable income, determined without
regard to any deduction for distributions paid, and the amounts of such distributions will therefore not be available to fund investment originations or to repay maturing debt. In addition, with
certain limited exceptions, we are only allowed to borrow amounts or issue debt securities or preferred shares, which we refer to collectively as "senior securities," such that our asset coverage, as
calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing, which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred
shares. In the event that we develop a need for additional capital in the future for investments or for any other reason, and we cannot obtain debt or equity financing on acceptable terms, or at all,
our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to allocate our portfolio among various issuers and sub-sectors and
achieve our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our shareholders.

Risks Related to Our Investments

We are exposed to risks associated with changes in interest rates.

We are subject to financial market risks, including changes in interest rates. General interest rate fluctuations may have a substantial
negative impact on our investments and investment opportunities and, accordingly have a material adverse effect on our investment objectives and our rate of return on invested capital. In addition, an
increase in interest rates would make it more expensive to use debt for our financing needs, if any.

Interest
rates have recently been at or near historic lows. In the event of a rising interest rate environment, payments under floating rate debt instruments generally would rise and
there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their
loans. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and
operations and could, over time, lead to increased defaults. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such
investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, fixed rate debt instruments may decline in value because the
fixed rates of interest paid thereunder may be below market interest rates.

In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. Because the statements made by the head of
the United Kingdom Financial Conduct Authority are recent in nature, there is no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the
potential effect of any such event on our cost of capital and net investment income cannot yet be determined.

Our investments in prospective portfolio companies may be risky, and we could lose all or part of our
investment.

Our investments in senior and subordinated debt, select equity investments and other investments issued by private Energy companies may be
risky.

Senior Debt.There is a risk that any collateral pledged by portfolio companies in which we have taken a security interest may decrease
in value over
time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions,
including as a result of the inability of the portfolio company to

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raise
additional capital. To the extent our debt investment is collateralized by the securities of a portfolio company's subsidiaries, such securities may lose some or all of their value in the event
of the bankruptcy or insolvency of the portfolio company. Also, in some circumstances, our security interest may be contractually or structurally subordinated to claims of other creditors. In
addition, deterioration in a portfolio company's financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the
collateral for the loan. Loans that are under-collateralized involve a greater risk of loss. In addition, second lien secured loans are granted a second priority security interest in collateral, which
means that any realization of collateral will generally be applied to pay first lien secured loans in full before second lien secured loans are paid. Consequently, the fact that a loan is secured does
not guarantee that we will receive principal and interest payments according to the senior debt's terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our
remedies.

Subordinated Debt.Our subordinated debt investments will generally rank junior in priority of payment to senior debt and will
generally be
unsecured. This may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss of the entire investment. These investments may involve additional risks
that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such
debt could subject us and our shareholders to non-cash income. Because we will not receive any principal repayments prior to the maturity of some of our subordinated debt investments, such investments
will be of greater risk than amortizing loans.

Equity Investments.We expect to make select equity investments in income-oriented preferred or common equity interests, which may
include interests
in MLPs. In addition, when we invest in senior secured loans and notes or subordinated debt, we may acquire warrants to purchase equity securities. The equity interests we receive may not appreciate
in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may
not be sufficient to offset any other losses we experience.

Net Profits Interests, Royalty Interests or VPPs.We may invest in energy-specific non-operating investments including net profits
interests, royalty
interests or VPPs. Net profits interests and royalty interests are contractual agreements whereby the holders of such interests are entitled to a portion of the mineral production, or proceeds
therefrom. A VPP is a type of structured investment whereby the owner sells a specific volume of production in a field or property to an investor and the investor
receives a specific quota of production on a monthly basis in either raw output or proceeds therefrom. We will not have any operational control over these investments and our receipt of payments is
contingent on the producer's ability to meet its supply obligations, which can make these types of investments highly speculative.

Non-U.S. Securities.We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S.
currencies, to the
extent permitted by the 1940 Act. Because evidences of ownership of such securities usually are held outside the United States, we would be subject to additional risks if we invested in non-U.S.
securities, which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect or
restrict the payment of principal and interest on the non-U.S. securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Because non-U.S.
securities may be purchased with and payable in foreign currencies, the value of these assets as measured in U.S. dollars may be affected unfavorably by changes in currency rates and exchange control
regulations.

In
addition, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade
securities, which are often referred to as "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. They may also be difficult
to value and illiquid.

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Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such
companies.

Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest.
By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt
instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our
investment in that portfolio company would typically be entitled to receive payment in full before we receive any proceeds. After repaying such senior creditors, such portfolio company may not have
any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions
with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or
we could be subject to lender liability claims.

If one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually
provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In
situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions
taken by us with respect to a borrower's business or in instances where we exercise control over the borrower or render significant managerial assistance.

We generally will not control our portfolio companies.

We do not expect to control most of our portfolio companies, even though we may have board representation or board observation rights, and our
debt agreements with such portfolio companies may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions
with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt
investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an
appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Second priority liens on collateral securing debt investments that we make to our portfolio companies may be
subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

Certain debt investments that we make to portfolio companies may be secured on a second priority basis by the same collateral securing first
priority debt of such companies. The first priority liens on the collateral will secure the portfolio company's obligations under any outstanding senior debt and may secure certain other future debt
that may be permitted to be incurred by such company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control
the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay the obligations in full before us. In addition, the value of the collateral in the event of
liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the
collateral would be sufficient to satisfy the debt obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If
such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the
collateral, will only have an unsecured claim against such company's remaining assets, if any.

The
rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the
terms of one

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or
more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority
liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the
ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents;
releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

Economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during
these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease, during these periods. Adverse economic conditions may also decrease
the value of any collateral securing our first lien or second lien secured loans. A prolonged recession may further decrease the value of such collateral and result in losses of value in our portfolio
and a decrease in our revenues, net income and net asset value. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision
by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results. Economic downturns or recessions may also
result in a portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders, which could lead to defaults and, potentially, acceleration of the time when the
loans are due and foreclosure on its assets representing collateral for its obligations, which could trigger cross defaults under other agreements and jeopardize our portfolio company's ability to
meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms
with a defaulting portfolio company.

A covenant breach by our portfolio companies may harm our operating results.

A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and,
potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company's ability to meet its
obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of
certain financial covenants, with a defaulting portfolio company.

Our portfolio companies may be highly leveraged.

Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These
companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies' ability to finance their future operations and capital needs. As a result, these
companies' flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company's income and net assets will
tend to increase or decrease at a greater rate than if borrowed money were not used.

Investing in middle-market companies involves a number of significant risks, any one of which could have a
material adverse effect on our operating results.

Investments in middle-market companies involve some of the same risks that apply generally to investments in larger, more established companies.
However, such investments have more pronounced risks in that they:



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We may not realize gains from our equity investments.

Certain investments that we may make may include warrants or other equity securities. In addition, we may make direct equity investments in
portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any
gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We may also be unable to realize any value if a portfolio company
does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may be unable to exercise any put
rights we acquire which grant us the right to sell our equity securities back to the portfolio company for the consideration provided in our investment documents if the issuer is in financial
distress.

An investment strategy focused primarily on privately-held companies presents certain challenges, including
the lack of available information about these companies.

Our investments are primarily in privately-held companies. Investments in private companies pose significantly greater risks than investments in
public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and the ability to withstand financial distress. As a result, these
companies, which may present greater credit risk than public companies, may be unable to meet the obligations under their debt and equity securities that we hold. Second, the investments themselves
often may be illiquid. The securities of many of the companies in which we invest are not publicly-traded or actively-traded on the secondary
market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, such securities may be subject to legal and other restrictions on
resale. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. These investments may also be difficult to
value because little public information generally exists about private companies, requiring an experienced due diligence team to analyze and value the potential portfolio company. Finally, these
companies often may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FS Advisor and/or GSO to obtain adequate information through due
diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley
Act and other rules and regulations that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and
we may lose money on our investments.

A lack of liquidity in certain of our investments may adversely affect our business.

We invest in certain companies whose securities are not publicly-traded or actively-traded on the secondary market and are, instead, traded on a
privately-negotiated over-the-counter secondary market for institutional investors, and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid than
publicly-traded securities. The illiquidity of certain of our investments

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may
make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the
value at which we had previously recorded these investments. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may
suffer losses.

We may not have the funds or ability to make additional investments in our portfolio companies.

We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a portfolio
company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common
stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such
an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may
reduce the expected return on the investment.

Our investments may include original issue discount and PIK instruments.

To the extent that we invest in original issue discount or PIK instruments and the accretion of original issue discount or PIK interest income
constitutes a portion of our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including
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We may from time to time enter into total return swaps, credit default swaps or other derivative transactions
which expose us to certain risks, including credit risk, market risk, liquidity risk and other risks similar to those associated with the use of leverage.

We may from time to time enter into total return swaps, credit default swaps or other derivative transactions that seek to modify or replace the
investment performance of a particular reference security or other asset. These transactions are typically individually negotiated, non-standardized agreements between two parties to exchange
payments, with payments generally calculated by reference to a notional amount or quantity. Swap contracts and similar derivative contracts are not traded on exchanges; rather, banks and dealers act
as principals in these markets. These investments may present risks in excess of those resulting from the referenced security or other asset. Because these transactions are not an acquisition of the
referenced security or other asset itself, the investor has no right directly to enforce compliance with the terms of the referenced security or other asset and has no voting or other consensual
rights of ownership with respect to the referenced security or other asset. In the event of insolvency of a counterparty, we will be treated as a general creditor of the counterparty and will have no
claim of title with respect to the referenced security or other asset.

A
total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the referenced security or other assets
underlying the total return swap during a specified period, in return for periodic payments based on a fixed or variable interest rate.

A
total return swap is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the total return swap and the debt obligations underlying the total
return swap. In addition, we may incur certain costs in connection with a total return swap that could in the aggregate be significant.

A
credit default swap is a contract in which one party buys or sells protection against a credit event with respect to an issuer, such as an issuer's failure to make timely payments of
interest or principal on its debt obligations, bankruptcy or restructuring during a specified period. Generally, if we sell credit protection using a credit default swap, we will receive fixed
payments from the swap counterparty and if a credit event occurs with respect to the applicable issuer, we will pay the swap counterparty par for the issuer's defaulted debt securities and the swap
counterparty will deliver the defaulted debt securities to us. Generally, if we buy credit protection using a credit default swap, we will make fixed payments to the counterparty and if a credit event
occurs with respect to the applicable issuer, we will deliver the issuer's defaulted securities underlying the swap to the swap counterparty and the counterparty will pay us par for the defaulted
securities. Alternatively, a credit default swap may be cash settled and the buyer of protection would receive the difference between the par value and the market value of the issuer's defaulted debt
securities from the seller of protection.

Credit
default swaps are subject to the credit risk of the underlying issuer. If we are selling credit protection, there is a risk that we will not properly assess the risk of the
underlying issuer, a credit event will occur and we will have to pay the counterparty. If we are buying credit protection, there is a risk that we will not properly assess the risk of the underlying
issuer, no credit event will occur and we will receive no benefit for the premium paid.

A
derivative transaction is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the
counterparty. In some cases, we may post collateral to secure our obligations to the counterparty, and we may be required to post additional collateral upon the occurrence of certain events such as a
decrease in the value of the reference security or other asset. In some cases, the counterparty may not collateralize any of its obligations to us.

Derivative
investments effectively add leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or
investing directly in such market. In addition to the risks described above, such arrangements are subject to risks similar to those associated with the use of leverage. See "Risks
Related to Debt Financing."

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Prepayments of our debt investments by our portfolio companies could adversely impact our results of
operations and reduce our return on equity.

We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will
generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than
the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of
prepayment fees, could negatively impact our return on equity.

Energy Company Risks

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This
investment policy may not be changed without at least 60 days' prior notice to holders of our common shares of any such change. The revenues, income (or losses) and valuations of Energy
companies can fluctuate suddenly and dramatically due to a number of factors.

Because our investment policy is to invest at least 80% of our total assets in securities of Energy
companies, our portfolio will not be well allocated among various industries.

As there can be a correlation in the valuation of the securities in our portfolio, a decline in value of the securities of one company may be
accompanied by a decline in the valuations of the securities of other companies within the Energy industry that we may hold in our portfolio. A decline in value of the securities of such issuers or a
downturn in the Energy sector might have a more severe impact on us than on an entity that is more broadly allocated among various industries.

An increase or decrease in commodity supply or demand may adversely affect our business.

A decrease in the production of natural gas, natural gas liquids, crude oil, coal or other energy commodities, a decrease in the volume of such
commodities available for transportation, mining, processing, storage or distribution, or a sustained decline in demand for such commodities may adversely impact the financial performance or prospects
of Energy companies in which we may invest.
Energy companies are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors, including fluctuating commodity prices, weather, increased
conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion of natural gas, natural gas liquids, crude oil or coal production, rising interest rates,
declines in domestic or foreign production of natural gas, natural gas liquids and crude oil, accidents or catastrophic events and economic conditions, among others.

An increase or decrease in commodity pricing may adversely affect our business.

The return on our prospective investments in Energy companies will be dependent on the margins received by those companies for the exploration,
development, production, gathering, transportation, processing, storing, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal
or power. These margins may fluctuate widely in response to a variety of factors including global and domestic economic conditions, weather conditions, natural disasters, the supply and price of
imported energy commodities, the production and storage levels of energy commodities in certain regions or in the world, political instability, terrorist activities, transportation facilities, energy
conservation, domestic and foreign governmental regulation and taxation and the availability of local, intrastate and interstate transportation systems. Volatility of commodity prices may also make it
more difficult for Energy companies in which we may invest to raise capital to the extent the market perceives that their performance may be directly or indirectly tied to commodity prices.

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Cyclicality within the Energy sector may adversely affect our business.

Industries within the Energy sector are cyclical with fluctuations in commodity prices and demand for commodities driven by a variety of
factors. The highly cyclical nature of the industries within the Energy sector may lead to volatile changes in commodity prices, which may adversely affect the earnings of Energy companies in which we
may invest.

A prolonged continuation of depressed oil and natural gas prices could have a material adverse effect on us.

Depressed oil and natural gas prices would adversely affect the credit quality and performance of certain of our debt and equity investments in
Energy companies. A decrease in credit quality and performance would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect our net asset value.
Should a prolonged period of depressed oil
and natural gas prices occur, it is likely that our portfolio companies' abilities to satisfy financial or operating covenants imposed by us or other lenders will be adversely affected, thereby
negatively impacting their financial condition and their ability to satisfy their debt service and other obligations to us. Likewise, should a prolonged period of depressed oil and natural gas prices
occur, it is likely that our portfolio companies' cash flow and profit generating capacities would also be adversely affected thereby negatively impacting their ability to pay us dividends or
distributions on certain of our investments.

Changes in international, foreign, federal, state or local government regulation may adversely affect our
business.

Energy companies are subject to significant international, foreign, federal, state and local government regulation, including how facilities are
constructed, maintained and operated, environmental and safety controls, and the prices they may charge for the products and services they provide. Various governmental authorities have the power to
enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. For
example, many state and federal environmental laws provide for civil penalties as well as regulatory remediation, thus adding to the potential liability an Energy company may face. More extensive
laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of Energy companies in which we
may invest.

In
particular, changes to laws and increased regulations or enforcement policies as a result of oil spills may adversely affect the financial performance of Energy companies.
Additionally, changes to laws and increased regulation or restrictions on the use of hydraulic fracturing may adversely impact the ability of Energy companies to economically develop oil and natural
gas resources and, in turn, reduce production for such commodities. Any such changes or increased regulations or policies may adversely affect the performance of Energy companies in which we may
invest.

Energy companies are subject to various operational risks.

Energy companies are subject to various operational risks, such as disruption of operations, mining, drilling or installation accidents,
inability to timely and effectively integrate newly acquired assets, unanticipated operation and maintenance expenses, lack of proper asset integrity, underestimated cost projections, inability to
renew or increased costs of rights of way, failure to obtain the necessary permits to operate and failure of third-party contractors to perform their contractual obligations. Thus, some Energy
companies may be subject to construction risk, acquisition risk or other risks arising from their specific business strategies.

Energy companies that focus on exploration and production are subject to numerous reserve and production
related risks.

Exploration and production businesses are subject to overstatement of the quantities of their reserves based upon any reserve estimates that
prove to be inaccurate, the possibility that no commercially productive oil, natural gas or other energy reservoirs will be discovered as a result of drilling or other exploration activities, the
curtailment, delay or cancellation of exploration activities as a result of unexpected conditions or miscalculations, title problems, pressure or irregularities in

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formations,
equipment failures or accidents, adverse weather conditions, compliance with environmental and other governmental requirements and cost of, or shortages or delays in the availability of,
drilling rigs and other exploration equipment, and operational risks and hazards associated with the development of the underlying properties, including natural disasters, blowouts, explosions, fires,
leakage of crude oil, natural gas or other resources, mechanical failures, cratering and pollution.

Competition between Energy companies may adversely affect our business.

The Energy companies in which we may invest face substantial competition in acquiring assets, expanding or constructing assets and facilities,
obtaining and retaining customers and contracts, securing trained personnel and operating their assets. Many of their competitors may have superior financial and other resources.

Inability by companies in which we may invest to make accretive acquisitions may adversely affect our
business.

The ability of Energy companies in which we may invest to grow and, where applicable, to increase dividends or distributions to their equity
holders can be highly dependent on their ability to make acquisitions of infrastructure assets that result in an increase in free cash flow. In the event that such companies are unable to make such
accretive acquisitions because they are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, because they are unable to raise financing for such
acquisitions on economically acceptable terms, or because they are outbid by competitors, their future growth and ability to make or raise dividends or distributions will be limited and their ability
to repay their debt and make payments to preferred equity holders may be weakened. Furthermore, even if these companies do consummate acquisitions that they believe will be accretive, the acquisitions
may instead result in a decrease in free cash flow.

A significant accident or event that is not fully insured could adversely affect the operations and financial
condition of Energy companies in which we may invest.

The operations of Energy companies in which we may invest are subject to many hazards inherent in the transporting, processing, storing,
distributing, mining, generating or marketing of natural gas, natural gas liquids, crude oil, coal, refined products, power or other commodities, or in the exploring, managing or producing of such
commodities, including: damage to pipelines, storage tanks, vessels or related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural disasters or by
acts of terrorism; inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined products or other commodities; and fires and explosions.
Further, since the September 11th terrorist attacks, the U.S. government has issued warnings that energy assets and facilities, specifically U.S. pipeline infrastructure, may be targeted
in future terrorist attacks. These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other
environmental damage and may result in the curtailment or suspension of their related operations. Not all Energy companies are fully insured against all risks inherent to their businesses. If a
significant accident or event occurs that is not fully insured, it could adversely affect the Energy company's operations and financial condition. In addition, any increased governmental regulation to
mitigate such risks (including regulations related to recent oil spills or hydraulic fracturing), could increase insurance premiums and other operating costs for Energy companies in which we may
invest.

Energy reserves naturally deplete as they are produced over time and this may adversely affect our business.

Energy reserves naturally deplete as they are produced over time. Many Energy companies are either engaged in the production of natural gas,
natural gas liquids, crude oil or coal, or are engaged in transporting, storing, distributing and processing these items or their derivatives on behalf of shippers. To maintain or grow their revenues,
these companies or their customers need to maintain or expand their reserves through exploration of new sources of supply, through the development of existing sources or through acquisitions. The
financial performance of Energy companies in which we may invest may be adversely affected if they, or the companies to whom they provide services, are unable to cost-effectively acquire additional
reserves sufficient to replace the depleted reserves. If an Energy company fails to add reserves by acquiring or developing them, its reserves and production will decline

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over
time as the reserves are produced. If an Energy company is not able to raise capital on favorable terms, it may not be able to add to or maintain its reserves.

Infrastructure assets may be the future target of terrorist organizations.

The terrorist attacks in the United States on September 11, 2001, had a disruptive effect on the economy and the securities markets.
United States military and related action in the Middle East and elsewhere could have significant adverse effects on the U.S. economy and the stock market. Uncertainty surrounding military strikes or
actions or a sustained military campaign may affect an Energy company's operations in unpredictable ways, including disruptions of fuel supplies and markets, and infrastructure assets could be direct
targets, or indirect casualties, of an act of terror. The U.S. government has issued warnings that infrastructure assets, specifically the United States' pipeline infrastructure, may be the future
target of terrorist organizations. In addition, changes in the insurance markets have made certain types of insurance more difficult, if not impossible, to obtain and have generally resulted in
increased premium costs.

Certain Energy companies are dependent on their parents or sponsors for a majority of their revenues and may
be subject to affiliate party risk.

Certain Energy companies in which we may invest are dependent on their parents or sponsors for a majority of their revenues. Any failure by an
Energy company's parent or sponsor to satisfy its payments or obligations would impact the Energy company's revenues and cash flows and ability to make distributions.

Changing economic, regulatory and political conditions in some countries, including political and military
conflicts, may adversely affect the businesses in which we invest.

Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time
resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes, boycotts and government inspections or requisitioning of vessels. These types of events could impact the delivery
of commodities or impact pricing of commodities.

Risks Related to Our Investments in MLPs

An investment in MLP units involves certain risks which differ from an investment in the common stock of a corporation. Holders of MLP units
have limited control and voting rights on matters affecting the partnership. In addition, there are certain tax risks associated with an investment in MLP units. See
"Risks Related to U.S. Federal Income Tax."

An MLP's cash flow, and consequently its distributions, are subject to operational and general energy
industry risks, which may result in disparate quarterly distributions.

A portion of the cash flow received by us may be derived from investments in the equity securities of MLPs. The amount of cash that an MLP has
available for distributions and the tax character of such distributions depend upon the amount of cash generated by the MLP's operations. Cash available for distribution will vary from quarter to
quarter and is largely dependent on factors affecting the MLP's operations and factors affecting the Energy industry in general. In addition to the risk factors described above, other factors which
may reduce the amount of cash an MLP has available for distribution in a given quarter include increased operating costs, maintenance capital expenditures, acquisition costs, expansion, construction
or exploration costs and borrowing costs.

Investments in MLPs may have limited liquidity.

Although common units of some MLPs may trade on public exchanges, certain of these securities may trade less frequently, particularly those with
smaller capitalizations. Securities with limited trading volumes may display volatile or erratic price movements. As a result, these securities may be difficult to dispose of at a fair price at the
times when we believe it is desirable to do so. These securities are also more difficult to value, and our judgment as to value will often be given greater weight than market quotations, if any exist.
Investment of our capital in securities that are less actively-traded, or over time

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experience
decreased trading volume, may restrict our ability to take advantage of other market opportunities. In addition, many MLP units are privately held.

Investments in MLPs are susceptible to interest rate fluctuation risks.

Interest
rate risk is the risk that securities will decline in value because of changes in market interest rates. The yields of equity and debt securities of MLPs are
susceptible in the short-term to fluctuations in interest rates and, like treasury bonds, the prices of these securities typically decline when interest rates rise. Accordingly, our net asset value
may be impacted by an increase in interest rates. Further, rising interest rates could adversely impact the financial performance of MLPs in which we invest by increasing their costs of capital. This
may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner.

Investments in MLPs are subject to certain tax risks.

MLPs are not subject to tax at the partnership level. Rather, each partner is allocated a share of the MLP's income, gains, losses, deductions,
and expenses. A change in current tax law, or a change in the underlying business of a given MLP could result in the MLP being treated as a corporation for U.S. federal tax purposes, which would
result in such MLP being required to pay U.S. federal income tax on its taxable income. Such treatment also would have the effect of reducing the amount of cash available for distribution by the
affected MLP.

Our investments in MLPs may be subject to additional fees and expenses, including management and incentive
fees, and, as a result, our investments in MLPs may achieve a lower rate of return than our other investments.

MLPs are subject to additional fees, some of which are paid regardless of the performance of its assets. We will pay certain management fees to
the adviser entity of any MLP in which we invest. FS Advisor will also earn its base management fee from us based on our gross assets, including our investment in any such MLP; therefore, we will be
paying both FS Advisor's base management fee and any management fees charged by an MLP. As a result, our investment returns attributable to MLPs in which we invest may be lower than other investments
we select. In addition, because the fees received by an MLP adviser are typically based on the managed assets of the MLP, including the proceeds of any leverage it may incur, the MLP adviser has a
financial incentive to utilize leverage, which may create a conflict of interest between the MLP adviser and us as a shareholder in the MLP.

Risks Related to Debt Financing

We currently use borrowed funds to make investments and are exposed to the typical risks associated with
leverage.

Borrowings and other types of financing, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore,
increases the risks associated with investing in our securities. Our and our special-purpose financing subsidiaries' lenders and debt holders have fixed dollar claims on our and their assets that are
superior to the claims of our shareholders. If the value of our assets increases, then leverage would cause the net asset value to increase more sharply than it would have had we not leveraged.
Conversely, if the value of our assets decreases,
leverage would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of consolidated interest payable on the
borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply
than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to shareholders. Leverage is generally considered a speculative investment technique.

The agreements governing our financing arrangements contain various covenants which, if not complied with,
could accelerate repayment under the applicable arrangement, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions
to our shareholders.

The agreements governing these financing arrangements contain various default provisions and operational covenants which, if triggered, could
result in the termination of the respective financing

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arrangements
and the acceleration of any amounts outstanding thereunder, which could require us or our subsidiaries to liquidate positions at a time and/or at a price which is disadvantageous to us.
This could result in losses and impact our ability to meet our investment objectives and pay distributions to shareholders.

Our
or our subsidiaries' failure to comply with the covenants set forth in the financing arrangements could materially and adversely affect our liquidity, financial condition, results of
operations and our ability to pay distributions to our shareholders. We cannot assure shareholders that we or our subsidiaries will be able to borrow funds under any such financing arrangements at any
particular time or at all. See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for a more detailed discussion of the terms of our financing
arrangements.

If we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may
increase the risk of investing in us.

The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested
equity capital. If we use leverage to partially finance our investments, through borrowing from banks and other lenders, shareholders will experience increased risks of investing in our common shares.
If the value of our assets increases, leverage would cause the net asset value attributable to our common shares to increase more sharply than it would have had we not leveraged. Conversely, if the
value of our assets decreases, leverage would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of
interest payable on the borrowed funds
would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed.
Such a decline could negatively affect our ability to make common share distribution payments. Leverage is generally considered a speculative investment technique. In addition, the decision to utilize
leverage will increase our assets and, as a result, will increase the amount of base management fees payable to FS Advisor.

Illustration.The following table illustrates the effect of leverage on returns from an investment in our common shares assuming
various annual
returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $4,269,312 in
total average assets, (ii) a weighted average cost of funds of 5.10%, (iii) $1,320,000 in borrowings outstanding (i.e., assumes that the full $100,000 available to us as of
December 31, 2017 under the financing arrangements with Barclays, BNP, Deutsche Bank, Fortress and Goldman, and (iv) $2,949,312 in average shareholders' equity. In order to compute the
"Corresponding return to shareholders," the "Assumed Return on Our Portfolio (net of expenses)" is multiplied by the assumed total average assets to obtain an assumed return to us. From this amount,
the interest expense is calculated by multiplying the assumed weighted average cost of funds times the assumed borrowings outstanding, and the product is subtracted from the assumed return to us in
order to determine the return available to shareholders. The return available to shareholders is then divided by our shareholders' equity to determine the "Corresponding return to shareholders."
Actual interest payments may be different.



Assumed Return on Our Portfolio (net of expenses)

10%

5%

0%

5%

10%Corresponding return to shareholders


16.76
%

9.52
%

2.28
%

4.95
%

12.19
%


Similarly,
assuming (i) approximately $4,269,312 in total average assets, (ii) a weighted average cost of funds of approximately 5.10% and (iii) $1,320,000 in
borrowings outstanding (i.e., assumes that the full $100,000 available to us as of December 31, 2017 under the financing arrangements with Barclays, BNP, Deutsche Bank, Fortress and
Goldman is outstanding, our assets would need to yield an annual return (net of expenses) of approximately 1.58% in order to cover the annual interest payments on our outstanding borrowings.

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Changes in interest rates may affect our cost of capital and net investment income.

Because we intend to use debt to finance investments, our net investment income will depend, in part, upon the difference between the rate at
which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on
our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income. We expect that our
long-term fixed-rate investments will be financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate
fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. These activities may limit our ability to participate in the benefits of
lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business,
financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to develop such expertise or arrange for such
expertise to be provided.

A
rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make
it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to FS Advisor with respect to pre-incentive fee net
investment income.

Risks Related to U.S. Federal Income Tax

We will be subject to corporate-level income tax if we are unable to qualify as a RIC under
Subchapter M of the Code or to satisfy RIC distribution requirements.

To qualify for and maintain RIC tax treatment under Subchapter M of the Code, we must meet the following annual distribution, income
source and asset diversification requirements. See "Item 1. BusinessTaxation as a RIC."



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We
must satisfy these tests on an ongoing basis in order to maintain RIC tax treatment, and may be required to make distributions to shareholders at times when it would be more
advantageous to invest cash in our existing or other investments, or when we do not have funds readily available for distribution. Compliance with the RIC tax requirements may hinder our ability to
operate solely on the basis of maximizing profits and the value of our shareholders' investments. If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate
income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.

Some of our investments may be subject to corporate-level income tax.

We may invest in certain debt and equity investments through taxable subsidiaries and the taxable income of these taxable subsidiaries will be
subject to federal and state corporate income taxes. We may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding and value
added taxes).

We may have difficulty paying our required distributions if we recognize income before or without receiving
cash representing such income.

For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding
payment in cash. For example, our investments may include debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or,
in certain cases, increasing interest rates or debt obligations that were issued with warrants). To the extent original issue discount or PIK interest constitutes a portion of our income, we must
include in taxable income each tax year a portion of the
original issue discount or PIK interest that accrues over the life of the instrument, regardless of whether cash representing such income is received by us in the same tax year. We may also have to
include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as
warrants or stock. We anticipate that a portion of our income may constitute original issue discounts or other income required to be included in taxable income prior to receipt of cash. Further, we
may elect to amortize market discounts and include such amounts in our taxable income in the current tax year, instead of upon disposition, as not making the election would limit our ability to deduct
interest expenses for tax purposes.

Because
any original issue discount or other amounts accrued will be included in our investment company taxable income for the tax year of the accrual, we may be required to make a
distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty
meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we
would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to
qualify for or maintain RIC tax treatment and thus become subject to corporate-level income tax.

We may be adversely affected if an MLP or other non-corporate business structure in which we invest is
treated as a corporation, rather than a partnership, for U.S. federal income tax purposes.

Our ability to meet our investment objectives will depend on the level of taxable income and distributions and dividends we receive from the
MLPs and other Energy company securities in which we may invest, a factor over which we have no control. The benefit we derive from an investment in MLPs is largely dependent on the MLPs being treated
as partnerships for U.S. federal income tax purposes. As a partnership, an MLP has no tax liability at the entity level. If, as a result of a change in current law or a change in an MLP's business, an
MLP is treated as a corporation for U.S. federal income tax purposes, such MLP would be obligated to pay U.S. federal income tax on its income at the corporate tax rate. If an MLP were classified as a
corporation for U.S. federal income tax purposes, the amount of cash available for distribution would be reduced and distributions received by us would be taxed under U.S. federal income tax laws
applicable to corporate distributions (as dividend income, return of capital or capital gain). Therefore, treatment of an MLP as a corporation for U.S. federal

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income
tax purposes would result in a reduction in the after-tax return to us, likely causing a reduction in the value of our common shares. In addition, if we receive a Schedule K-1 from an
MLP after having mailed a Form 1099-DIV to our shareholders, and our estimates with respect to the applicable MLP are determined to have been materially incorrect, we may be required to mail an
amended Form 1099-DIV to our shareholders.

We may be adversely affected if an MLP or other non-corporate business structure in which we invest is unable
to take advantage of certain tax deductions for U.S. federal income tax purposes and our income from investments in MLPs may exceed the cash received from such investments.

As a limited partner in the MLPs in which we seek to invest, we will receive our share of income, gains, losses, deductions and credits from
those MLPs. Historically, a significant portion of income from MLPs has been offset by tax deductions. As a result, this income has been significantly lower than cash distributions paid by MLPs. We
will incur a current tax liability on our share of an MLP's income and gains that is not offset by tax deductions, losses, and credits, or our net operating loss carryforwards, if any. The percentage
of an MLP's income and gains which is offset by tax deductions, losses, and credits will fluctuate over time for various reasons. A significant slowdown in acquisition activity or capital spending by
MLPs held in our portfolio could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in an increase in our net ordinary income that we are required to
distribute to shareholders to maintain our status as a RIC and to eliminate our liability for U.S. federal income tax. If our income from our investments in MLPs exceeds the cash distributions
received from such investments, we may need to obtain cash from other sources in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources, we may fail
to qualify for or maintain RIC tax treatment and become subject to corporate-level federal income tax. We may also recognize gain in excess of cash proceeds upon the sale of an interest in an MLP. Any
such gain may need to be distributed or deemed distributed in order to avoid liability for corporate-level federal income taxes on such gain.

Our portfolio investments may present special tax issues.

Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for us. U.S. federal income
tax rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or
worthless debt in equity securities, how payments received on obligations in default should be allocated between principal and interest income, as well as whether exchanges of debt instruments in a
bankruptcy or workout context are taxable. Such matters could cause us to recognize taxable income for U.S. federal income tax purposes, even in the absence of cash or economic gain, and require us to
make taxable distributions to our shareholders to maintain our RIC status or preclude the imposition of either U.S. federal corporate income or excise taxation. Additionally, because such taxable
income may not be matched by corresponding cash received by us, we may be required to borrow money or dispose of other investments to be able to make distributions to our shareholders. These and other
issues will be considered by us, to the extent determined necessary, in order that we minimize the level of any U.S. federal income or excise tax that we would otherwise incur. See "Item 1.
BusinessTaxation as a RIC."

Legislative or regulatory tax changes could adversely affect investors.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended. Any
of those new laws, regulations or
interpretations may take effect retroactively and could adversely affect the taxation of us or our shareholders. Therefore, changes in tax laws, regulations or administrative interpretations or any
amendments thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments. In particular, on December 22, 2017, the Tax Cuts and Jobs
Act was signed into law. This tax legislation lowers the general corporate income tax rate from 35 percent to 21 percent, makes changes regarding the use of net operating losses, repeals
the corporate alternative minimum tax and makes significant changes with respect to the U.S. international tax rules. In addition, the legislation generally requires a holder that uses the accrual
method of accounting for U.S. tax purposes to include certain amounts in income no later than the time such amounts are reflected on certain financial

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statements,
which therefore if applicable would require us to accrue income earlier than under prior law, although the precise application of this rule is un-clear at this time. The legislation also
limits the amount or value of interest deductions of borrowers and in that way may potentially affect the loan market and our and our portfolio companies' use of leverage. For individual taxpayers,
the legislation reduces the maximum individual income tax rate and eliminates the deductibility of miscellaneous itemized deductions for taxable years 2018 through 2025. The impact of this new
legislation is uncertain.

Risks Related to an Investment in Our Common Shares

Our common shares are not listed on an exchange or quoted through a quotation system, and will not be for the
foreseeable future, if ever. Therefore, shareholders will have limited liquidity and may not receive a full return of invested capital upon selling common shares.

Our common shares are illiquid assets for which there is not a secondary market and it is not expected that any will develop in the foreseeable
future. There can be no assurance that we will complete a liquidity event. A liquidity event could include (1) a listing of our common shares on a national securities exchange, (2) the
sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation or (3) a merger or another transaction approved by our board of
trustees in which our shareholders likely will receive cash or shares of a publicly-traded company, including potentially a company that is an affiliate of us.

In
addition, any shares repurchased pursuant to our share repurchase program may be purchased at a price which may reflect a discount from the purchase price a shareholder paid for the
common shares being repurchased. If our common shares are listed, we cannot assure shareholders that a public
trading market will develop. In addition, a liquidity event involving a listing of our common shares on a national securities exchange may include certain restrictions on the ability of shareholders
to sell their common shares. Further, even if we do complete a liquidity event, shareholders may not receive a return of all of their invested capital.

See
"Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
SecuritiesShare Repurchase Program and Distributions" for a detailed description of our share repurchase program.

We are not obligated to complete a liquidity event by a specified date; therefore, it will be difficult for
an investor to sell his or her common shares.

A liquidity event could include (1) a listing of our common shares on a national securities exchange, (2) the sale of all or
substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, or (3) a merger or another transaction approved by our board of trustees in which
our shareholders likely will receive cash or shares of a publicly-traded company, including potentially a company that is an affiliate of us. However, there can be no assurance that we will complete a
liquidity event by a specified date or at all. If we do not successfully complete a liquidity event, liquidity for an investor's common shares will be limited to our share repurchase program, which we
have no obligation to maintain.

Only a limited number of common shares may be repurchased pursuant to our share repurchase program and, to
the extent shareholders are able to sell their common shares under our share repurchase program, shareholders may not be able to recover the amount of their investment in those shares.

Our share repurchase program includes numerous restrictions that limit shareholders' ability to sell their common shares. We intend to limit the
number of common shares repurchased pursuant to our share repurchase program as follows: (1) we currently intend to limit the number of common shares to be repurchased during any calendar year
to the number of common shares we can repurchase with the proceeds we receive from the issuance of our common shares under our distribution reinvestment plan, although at the discretion of our board
of trustees, we may also use cash on hand, cash available from borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase common shares;
(2) we intend to limit the number of common shares to be repurchased in any calendar year to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5%
in each calendar quarter (though the actual number of

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common
shares that we offer to repurchase may be less in light of the limitations noted above); (3) unless shareholders tender all of their common shares, shareholders must tender at least 25%
of the number of common shares they have purchased and generally must maintain a minimum balance of $5,000 subsequent to submitting a portion of their common shares for repurchase by us; and
(4) to the extent that the number of common shares tendered for repurchase exceeds the number of common shares that we are able to repurchase, we will repurchase common shares on a pro rata
basis, not on a first-come, first-served basis. Further, we will have no obligation to repurchase common shares if the repurchase would violate the restrictions on distributions under federal law or
Delaware law, which prohibits distributions that would cause a trust to fail to meet statutory tests of solvency. Any of the foregoing limitations may prevent us from accommodating all repurchase
requests made in any year.

In
addition, our board of trustees may amend, suspend or terminate the share repurchase program upon 30 days' notice. We will notify shareholders of such developments
(1) in our quarterly reports or (2) by means of a separate mailing to shareholders, accompanied by disclosure in a current or periodic report under the Exchange Act. In addition,
although we have adopted a share repurchase program, we have discretion to not repurchase common shares, to suspend the share repurchase program and to cease repurchases. Further, the share repurchase
program has many limitations and should not be relied upon as a method to sell common shares promptly or at a desired price.

Our distribution proceeds may exceed our earnings. Therefore, portions of the distributions that we make may
represent a return of capital to shareholders for tax purposes, which will lower their tax basis in their shares.

We may pay all or a substantial portion of our distributions from sources that may constitute a return of shareholders' capital and will lower
such shareholders' tax basis in their shares. A return of capital generally is a return of a shareholder's investment rather than a return of earnings or gains derived from our investment activities.

We may pay distributions from borrowings or the sale of assets to the extent our cash flows from operations,
net investment income or earnings are not sufficient to fund declared distributions.

We may fund distributions from the uninvested proceeds of our continuous public offering and borrowings, and we have not established limits on
the amount of funds we may use from such sources to make any such distributions. We have paid and may continue to pay distributions from the sale of assets to the extent distributions exceed our
earnings or cash flows from operations.

The timing of our repurchase offers pursuant to our share repurchase program may be at a time that is
disadvantageous to our shareholders.

When we make quarterly repurchase offers pursuant to our share repurchase program, we may offer to repurchase common shares at a price that is
lower than the price that investors paid for common shares in our offering. As a result, to the extent investors have the ability to sell their common shares to us as part of our share repurchase
program, the price at which an investor may sell common shares may be lower than what an investor paid in connection with the purchase of common shares in our offering.

In
addition, in the event an investor chooses to participate in our share repurchase program, the investor will be required to provide us with notice of intent to participate prior to
knowing what the repurchase price will be on the repurchase date. Although an investor will have the ability to withdraw a repurchase request prior to the expiration date of such tender offer, to the
extent an investor seeks to sell common shares to us as part of our share repurchase program, the investor will be required to do so without knowledge of what the repurchase price of our common shares
will be on the repurchase date.

A shareholder's interest in us will be diluted if we issue additional common shares, which could reduce the
overall value of an investment in us.

Our investors do not have preemptive rights to any common shares we issue in the future. Our declaration of trust authorizes us to issue
700,000,000 common shares. Pursuant to our declaration of trust, a majority of our entire board of trustees may amend our declaration of trust to increase the number of authorized common shares
without shareholder approval. After an investor purchases

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common
shares, our board of trustees may elect to sell additional common shares in the future, issue equity interests in private offerings or issue share-based awards to our independent trustees or
employees of FS Advisor. To the extent we issue additional equity interests after an investor purchases our common shares, an investor's percentage ownership interest in us will be diluted. In
addition, depending upon the terms and pricing of any additional offerings and the value of our investments, an investor may also experience dilution in the book value and fair value of their common
shares.

Certain provisions of our declaration of trust and bylaws could deter takeover attempts and have an adverse
impact on the value of our common shares.

Our declaration of trust and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the
effect of discouraging a third party from attempting to acquire us. Our board of trustees may, without shareholder action, authorize the issuance of shares in one or more classes or series, including
preferred shares; and our board of trustees may, without shareholder action, amend our declaration of trust to increase the number of our common shares, of any class or series, that we have authority
to issue. In addition, a trustee may be removed only by vote of at least two-thirds of the votes entitled to be cast. These anti-takeover provisions may inhibit a change of control in circumstances
that could give the holders of our common shares the opportunity to realize a premium over the value of our common shares.

Item 1B.    Unresolved Staff Comments.

Not applicable.

Item 2.    Properties.

We do not own any real estate or other physical properties materially important to our operation. Our headquarters are located at 201 Rouse
Boulevard, Philadelphia, Pennsylvania, 19112. We believe that our office facilities are suitable and adequate for our business as it is presently conducted.

Item 3.    Legal Proceedings.

We are not currently subject to any material legal proceedings, and, to our knowledge, no material legal proceedings are threatened against us.
From time to time, we may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio
companies. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that any such proceedings will have a material effect upon our financial condition or results
of operations.

Item 4.    Mine Safety Disclosures.

Not applicable.

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PART II

Many of the amounts and percentages presented in Part II have been rounded for convenience of presentation and all dollar amounts,
excluding per share amounts, are presented in thousands unless otherwise noted.

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is currently no market for our common shares, and we do not expect that a market for our common shares will develop in the foreseeable
future. In November 2016, we closed our continuous public offering of common shares to new investors. Following the closing of our continuous public offering, we have continued to issue shares
pursuant to our distribution reinvestment plan.

Set
forth below is a chart describing the classes of our securities outstanding as of March 7, 2018:



(1)

(2)

(3)

(4)Title of Class

Amount
Authorized

Amount Held by Us or
for Our Account

Amount Outstanding
Exclusive of Amount
Under Column (3)Common Shares


700,000,000





440,155,335


As
of March 7, 2018, we had 89,039 record holders of our common shares.

Share Repurchase Program and Distributions

We intend to continue to conduct quarterly tender offers pursuant to our share repurchase program.

The
following table provides information concerning our repurchases of common shares pursuant to our share repurchase program during the quarter ended December 31, 2017:



Period

Total
Number of
Shares
Purchased

Average
Price Paid
per Share(2)

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May Yet
Be Purchased
Under the
Plans or ProgramsOctober 1 to October 31, 2017


7,682,421

$
7.150


7,682,421


(1
)November 1 to November 30, 2017











December 1 to December 31, 2017











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total


7,682,421

$
7.150


7,682,421


(1
)​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)The
maximum number of common shares available for repurchase on October 2, 2017 was 10,224,187. A description of the maximum number of common shares that may
be repurchased under our share repurchase program is set forth in Note 3 to our audited consolidated financial statements contained in this annual report on Form 10-K.(2)On
October 13, 2016, and in connection with the closing of our continuous public offering, we amended the terms of our share repurchase program, which was
first effective for our quarterly repurchase offer for the fourth quarter of 2016 to provide that shares repurchased under the program would be repurchased at a price determined as described above.
Prior to amending the share repurchase program, we offered to repurchase common shares at a price equal to 90% of the offering price in effect on the date of repurchase.


Subject
to applicable legal restrictions and the sole discretion of our board of trustees, we intend to declare and pay regular cash distributions on a monthly basis. We will calculate
each shareholder's specific distribution amount for the period using record and declaration dates and each shareholder's distributions will begin to accrue on the date that common shares are issued to
such shareholder. From time to time, we may also pay special interim distributions in the form of cash or common shares at the

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discretion
of our board of trustees. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.

The
following table reflects the cash distributions per share that we have declared and paid on our common shares during the years ended December 31, 2017, 2016 and 2015:



DistributionFor the Year Ended December 31,

Per Share

Amount2015

$
0.7085

$
238,8332016

$
0.7085

$
288,9822017

$
0.7085

$
312,694


See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsRIC Tax Treatment and Distributions and Note 4 to our
consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions and our distribution reinvestment plan, including certain
related tax considerations as well as a detailed discussion of the expense reimbursement agreement, including amounts reimbursed to us by FS Investments thereunder and the repayment of such amounts to
FS Investments.

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Item 6.    Selected Financial Data.

The following selected consolidated financial data for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 is derived from our
consolidated financial statements which have been audited by RSM US LLP, our independent registered public accounting firm. The data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and notes thereto included elsewhere in this annual report on
Form 10-K.



Year Ended December 31,2017

2016

2015

2014

2013Statements of operations data:Investment income

$
418,756

$
369,740

$
379,653

$
289,970

$
132,002Operating expensesTotal expenses


160,584


138,093


152,058


115,081


65,198Less: Expense reimbursement from sponsor


(31,260
)










Add: Expense recoupment due to sponsor


2,858











​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net expenses


132,182


138,093


152,058


115,081


65,198​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


286,574


231,647


227,595


174,889


66,804Total net realized and unrealized gain (loss) on investments


(399,544
)

520,937


(738,894
)

(344,398
)

41,566​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
(112,970
)
$
752,584

$
(511,299
)
$
(169,509
)
$
108,370​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share data:(1)Net investment incomebasic and diluted

$
0.65

$
0.57

$
0.67

$
0.74

$
0.58​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operationsbasic and diluted

$
(0.26
)
$
1.84

$
(1.51
)
$
(0.72
)
$
0.94​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Distributions declared(2)

$
0.71

$
0.71

$
0.71

$
0.69

$
0.66​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Balance sheet data:Total assets

$
4,316,431

$
4,268,297

$
3,498,105

$
3,714,351

$
2,428,659​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Credit facilities and repurchase agreement payable

$
1,220,000

$
873,665

$
1,040,494

$
1,090,413

$
624,174​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total net assets

$
2,966,042

$
3,348,894

$
2,417,861

$
2,565,721

$
1,676,237​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Other data:Total return(3)


(3.65
)%

29.53
%

(17.34
)%

(4.79
)%

10.76
%Total return (without assuming reinvestment of distributions)(3)


(3.29
)%

28.00
%

(15.87
)%

(4.14
)%

10.49
%Number of portfolio company investments at year end


76


84


90


125


104Total portfolio investments for the year

$
1,861,618

$
1,488,179

$
1,195,947

$
2,437,689

$
2,295,602Proceeds from sales and prepayments of investments

$
1,431,648

$
1,225,052

$
800,534

$
1,044,311

$
735,673


(1)The
per share data was derived by using the weighted average shares outstanding during the applicable year.(2)The
per share data for distributions reflects the actual amount of distributions paid per share during the applicable year.


56

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Table of Contents

(3)The
total return for each year presented was calculated based on the change in net asset value during the applicable year, including the impact of distributions
reinvested in accordance with our distribution reinvestment plan. The total return (without assuming reinvestment of distributions) for each year presented was calculated by taking the net asset value
per share as of the end of the applicable period, adding the cash distributions per share which were declared during the applicable year and dividing the total by the net asset value per share at the
beginning of the applicable year. The total returns do not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of our common shares. The total
returns include the effect of the issuance of shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical
calculations of total returns in the table should not be considered representations of our future total returns, which may be greater or less than the returns shown in the table due to a number of
factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rates payable on the debt securities we acquire, the level of our expenses,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of
these factors, results for any previous period should not be relied upon as being indicative of performance in future years. The total return calculations set forth above represent the total returns
on our investment portfolio during the applicable year and do not represent an actual returns to shareholders.


57

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Table of Contents

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.
                              (in thousands, except share and per share amounts)

The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included
elsewhere in this annual report on Form 10-K.

Forward-Looking Statements

Some of the statements in this annual report on Form 10-K constitute forward-looking statements because they relate to future events or
our future performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K may include statements as
to:



In
addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The
forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the
forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors." Other factors that could cause actual results to differ materially
include:



58

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Table of Contents



We
have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this annual report on Form 10-K.
Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
Shareholders are advised to consult any additional disclosures that we may make directly to shareholders or through reports that we may file in the future with the SEC, including annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this annual report on Form 10-K are
excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.

Overview

We were formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced
investment operations on July 18, 2011 upon raising gross proceeds in excess of $2,500 from sales of our common shares in our continuous public offering to persons who were not affiliated with
us or FS Advisor. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for
U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. Prior to satisfying the minimum offering requirement, we had no operations except for
matters relating to our organization. In November 2016, we closed our continuous public offering of common shares to new investors.

Our
investment activities are managed by FS Advisor and supervised by our board of trustees, a majority of whom are independent. Under our investment advisory and administrative services
agreement, we have agreed to pay FS Advisor an annual base management fee based on our gross assets as well as incentive fees based on our performance. FS Advisor engaged GSO to act as our investment
sub-adviser. GSO currently assists FS Advisor in identifying investment opportunities and makes investment recommendations for approval by FS Advisor according to guidelines set by FS Advisor.

Our
investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies. This investment policy may not be changed without at
least 60 days' prior notice to holders of our common shares of any such change.

As
we previously announced on December 11, 2017, GSO intends to resign as our investment sub-adviser and terminate the investment sub-advisory agreement effective as of the GSO
end date. In connection with GSO's resignation as our investment sub-adviser, FS Advisor and its affiliates and EIG desire to enter into a relationship whereby FS Advisor and EIG will jointly provide
management, investment advisory and administrative services to us through FS/EIG Advisor. See "The Transition of Investment Advisory
Services" for information regarding our potential investment advisory relationship with FS/EIG Advisor.

Our
investment objective is to generate current income and long-term capital appreciation. We have identified and intend to focus on the following investment categories, which we believe
will allow us to generate an attractive total return with an acceptable level of risk.

Direct Originations:    We intend to leverage our relationships and, currently, our relationship with GSO and its global sourcing and
origination
platform, including its industry relationships, to directly source investment opportunities. Such investments are originated or structured for us or made by us and are not generally available to the
broader market. These investments may include both debt and equity components, although we do not expect to make equity investments (other than income-oriented equity investments) independent of
having an existing credit relationship. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.

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Opportunistic:    We seek to capitalize on market price inefficiencies by investing in loans, bonds and other securities where the market
price of such
investment reflects a lower value than deemed warranted by our fundamental analysis. We believe that market price inefficiencies may occur due to, among other things, general dislocations in the
markets, a misunderstanding by the market of a particular company or an Energy industry sub-sector being out of favor with the broader investment community. We seek to allocate capital to these
securities that have been misunderstood or mispriced by the market and where we believe there is an opportunity to earn an attractive return on our investment. Such opportunities may include both
event driven investments and anchor orders.

In
the case of event driven investments, we intend to take advantage of dislocations that arise in the markets due to an impending event and where the market's apparent expectation of
value differs substantially from our fundamental analysis. Such events may include a looming debt maturity or default, a merger, spin-off or other corporate reorganization, an adverse regulatory or
legal ruling, or a material contract expiration, any of which may significantly improve or impair a company's financial position. Compared to other investment strategies, event driven investing
depends more heavily on our ability to successfully predict the outcome of an individual event rather than on underlying macroeconomic fundamentals. As a result, successful event driven strategies may
offer both substantial diversification benefits and the ability to generate performance in uncertain market environments.

We
may also invest in certain opportunities that are originated and then syndicated by a commercial or investment bank but where we provide a capital commitment significantly above the
average syndicate participant, i.e., an anchor order. In these types of investments, we may receive fees, preferential pricing or other benefits not available to other lenders in return for our
significant capital commitment. Our decision to provide an anchor order to a syndicated transaction is predicated on a rigorous credit analysis, our familiarity with a particular company, Energy
industry sub-sector or financial sponsor, and the broader investment experiences of FS Advisor and GSO.

Broadly Syndicated/Other:    Although our primary focus is to invest in directly originated transactions and opportunistic investments, in
certain
circumstances we will also invest in the broadly syndicated loan and high yield markets. Broadly syndicated loans and bonds are generally more liquid than our directly originated investments and
provide a complement to our less liquid strategies. In addition, and because we typically receive more attractive financing terms on these positions than we do on our less liquid assets, we are able
to leverage the broadly syndicated portion of our portfolio in such a way that maximizes the levered return potential of our portfolio.

Our
portfolio is comprised primarily of income-oriented securities, which refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy
companies within the United States. We intend to weight our portfolio towards senior and subordinated debt. In addition to investments purchased from dealers or other investors in the secondary
market, we expect to invest in primary market transactions and directly originated investments as this will provide us with the ability to tailor investments to best match a project's or company's
needs with our investment objectives. Our portfolio may also be comprised of select income-oriented preferred or common equity interests, which refers to equity interests that pay consistent,
high-yielding dividends, that we believe will produce both current income and long-term capital appreciation. These income-oriented preferred or common equity interests may include interests in master
limited partnerships. In connection with certain of our debt investments or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or options, as
additional consideration or otherwise in connection with a restructuring.

Revenues

The principal measure of our financial performance is net increase or decrease in net assets resulting from operations, which includes net
investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net change in unrealized appreciation or depreciation on investments and net change in
unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses.
Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or
loss on foreign currency for those foreign

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Table of Contents

denominated
investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net change in unrealized
appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign
denominated investments. Net change in unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations.

We
principally generate revenues in the form of interest income on the debt investments we hold. We also generate revenues in the form of dividends and other distributions on the equity
or other securities we may hold. In addition, we may generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, fees for providing managerial
assistance, consulting fees, prepayment fees and performance-based fees.

Expenses

Our primary operating expenses include the payment of advisory fees and other expenses under the investment advisory and administrative services
agreement, interest expense from financing arrangements and other expenses necessary for our operations. Our investment advisory fee compensates FS Advisor for its work in identifying, evaluating,
negotiating, executing, monitoring and servicing our investments. FS Advisor is responsible for compensating our investment sub-adviser.

We
reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related
expenses of certain personnel of FS Investments providing administrative services to us on behalf of FS Advisor. Such services include the provision of general ledger accounting, fund accounting,
legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. FS Advisor also performs, or oversees the performance of, our corporate
operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our shareholders and reports
filed with the SEC. In addition, FS Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our
shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others.

The
amount of the reimbursement payable to FS Advisor is set at the lesser of (1) FS Advisor's actual costs incurred in providing such services and (2) the amount that we
estimate we would be required to pay alternative service providers for comparable services in the same geographic location. FS Advisor is required to allocate the cost of such services to us based on
factors such as assets, revenues, time allocations and/or other reasonable metrics. Our board of trustees reviews the methodology employed in determining how the expenses are allocated to us and the
proposed allocation of the administrative expenses among us and certain affiliates of FS Advisor. Our board of trustees then assesses the reasonableness of such reimbursements for expenses allocated
to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from
third-party service providers known to be available. In addition, our board of trustees considers whether any single third-party service provider would be capable of providing all such services at
comparable cost and quality. Finally, our board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a percentage of our net assets to the same ratio as
reported by other comparable BDCs. We do not reimburse FS Advisor for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative
items allocated to a controlling person of FS Advisor.

We
bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:



61

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In
addition, we have contracted with State Street to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information
for review by FS Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with
respect to RIC compliance.

For
information regarding our expense reimbursement arrangement with FS Investments, see Note 4 to our consolidated financial statements contained in this annual report on
Form 10-K.

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Table of Contents

Portfolio Investment Activity for the Years Ended December 31, 2017 and 2016

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the years ended December 31,
2017 and 2016:



For the Year Ended
December 31,Net Investment Activity

2017

2016Purchases

$
1,861,618

$
1,488,179Sales and Repayments


(1,431,648
)

(1,225,052
)​
​
​
​
​
​
​
​Net Portfolio Activity

$
429,970

$
263,127​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​






For the Year Ended December 31,2017

2016New Investment Activity by Asset Class

Purchases

Percentage

Purchases

PercentageSenior Secured LoansFirst Lien

$
397,162


21
%
$
307,960


21
%Senior Secured LoansSecond Lien


428,871


23
%

203,980


14
%Senior Secured Bonds


347,091


19
%

147,795


10
%Subordinated Debt


621,372


33
%

410,587


27
%Equity/Other


67,122


4
%

417,857


28
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
1,861,618


100
%
$
1,488,179


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


The
following table summarizes the composition of our investment portfolio at cost and fair value as of December 31, 2017 and 2016:



December 31, 2017

December 31, 2016Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
961,883

$
924,926


23
%
$
947,803

$
912,491


23
%Senior Secured LoansSecond Lien


860,470


796,524


20
%

948,762


873,869


22
%Senior Secured Bonds


664,542


660,151


17
%

388,512


397,614


10
%Subordinated Debt


1,229,790


1,203,524


30
%

1,049,097


1,043,167


27
%Equity/Other


641,081


411,580


10
%

628,814


683,299


18
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
4,357,766

$
3,996,705


100
%
$
3,962,988

$
3,910,440


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Amortized
cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.


The
following table presents certain selected information regarding the composition of our investment portfolio as of December 31, 2017 and 2016:



December 31, 2017

December 31, 2016Number of Portfolio Companies


76


84% Variable Rate (based on fair value)


40.1
%

43.6
%% Fixed Rate (based on fair value)


49.6
%

38.9
%% Income Producing Equity/Other Investments (based on fair value)


0.7
%

3.5
%% Non-Income Producing Equity/Other Investments (based on fair value)


9.6
%

14.0
%Average Annual EBITDA of Portfolio Companies

$
188,168

$
304,299Weighted Average Purchase Price of Debt Investments (as a % of par value)


97.0
%

97.2
%% of Investments on Non-Accrual (based on fair value)


2.6
%

0.0
%Gross Portfolio Yield Prior to Leverage (based on amortized cost)


8.0
%

8.8
%Gross Portfolio Yield Prior to Leverage (based on amortized cost)Excluding Non-Income Producing Assets


9.8
%

10.2
%


63

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Table of Contents

Based on our regular monthly cash distribution rate of $0.059042 per share as of December 31, 2017 and 2016, and the price at which we issued shares
pursuant to our distribution reinvestment plan of $6.70 and $7.70, respectively, per share, the annualized distribution rate to shareholders as of December 31, 2017 and 2016 was 10.57% and
9.20%, respectively. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital. For the years ended December 31, 2017 and 2016, our
total return was (3.65)% and 29.53%, respectively, and our total return without assuming reinvestment of distributions was (3.29)% and 28.00%, respectively. On January 2, 2018, our board of
trustees reduced the regular monthly cash distribution amount to $0.041667 per share to be paid to shareholders of record for January 2018 through March 2018. Based on a distribution amount of
$0.041667 per share, and the price at which we last issued shares pursuant to our distribution reinvestment plan of $6.70 per share, the annualized distribution rate to shareholders as of
February 28, 2018 was 7.46%.

Our
estimated gross portfolio yield and annualized distribution rate to shareholders do not represent actual investment returns to shareholders. Our gross annual portfolio yield and
distribution rate to shareholders are subject to change and in the future may be greater or less than the rates set forth above. See "Item 1A. Risk Factors" for a discussion of the
uncertainties, risks and assumptions associated with these statements. See footnote 6 to the financial highlights table included in Note 11 to
our consolidated financial statements contained in this annual report on Form 10-K for information regarding the calculations of our total returns.

Direct Originations

The following tables present certain selected information regarding our direct originations for the three months and year ended
December 31, 2017:



New Direct Originations

For the
Three Months Ended
December 31, 2017

For the
Year Ended
December 31, 2017Total Commitments (including unfunded commitments)

$
142,815

$
1,045,373Exited Investments (including partial paydowns)


(104,869
)

(590,931
)​
​
​
​
​
​
​
​Net Direct Originations

$
37,946

$
454,442​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​






For the
Three Months Ended
December 31, 2017

For the
Year Ended
December 31, 2017New Direct Originations by Asset Class
    (including unfunded commitments)

Commitment
Amount

Percentage

Commitment
Amount

PercentageSenior Secured LoansFirst Lien

$
60,300


42
%
$
285,688


27
%Senior Secured LoansSecond Lien


15,000


11
%

386,000


37
%Senior Secured Bonds


40,000


28
%

162,812


16
%Subordinated Debt








165,000


16
%Equity/Other


27,515


19
%

45,873


4
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
142,815


100
%
$
1,045,373


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​






For the
Three Months Ended
December 31, 2017

For the
Year Ended
December 31, 2017Average New Direct Origination Commitment Amount


$20,402


$47,517Weighted Average Maturity for New Direct Originations


8/24/22


9/27/22Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during Period


6.7
%

8.6
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of New Direct Originations Funded during PeriodExcluding Non-Income Producing
Assets


8.6
%

9.0
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period


6.3
%

10.2
%


64

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Table of Contents

The
following table presents certain selected information regarding our direct originations as of December 31, 2017 and 2016:



Characteristics of All Direct Originations held in Portfolio

December 31, 2017

December 31, 2016Number of Portfolio Companies


36


28Average Annual EBITDA of Portfolio Companies

$
77,664

$
71,509Average Leverage Through Tranche of Portfolio CompaniesExcluding Equity/Other Securities


5.7x


4.8x% of Investments on Non-Accrual (based on fair value)


2.6
%

0.1
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations


7.4
%

8.9
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct OriginationsExcluding Non-Income Producing Assets


9.8
%

11.4
%


Portfolio Composition by Strategy

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the total
portfolio assets in such strategies as of December 31, 2017 and 2016:



December 31, 2017

December 31, 2016Portfolio Composition by Strategy

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioDirect Originations

$
2,277,397


57
%
$
2,208,234


57
%Opportunistic


1,037,413


26
%

867,477


22
%Broadly Syndicated/Other


681,895


17
%

834,729


21
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,996,705


100
%
$
3,910,440


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


See
Note 6 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding the composition of our investment
portfolio by industry classification.

Portfolio Asset Quality

In addition to various risk management and monitoring tools, FS Advisor uses an investment rating system to characterize and monitor the
expected level of returns on each investment in our portfolio. FS Advisor uses an investment rating scale of 1 to 5. The following is a description of the conditions associated with each investment
rating:



Investment
Rating

Summary Description1

Investment exceeding expectations and/or capital gain expected.2

Performing investment generally executing in accordance with the portfolio company's business planfull return of principal and
interest expected.3

Performing investment requiring closer monitoring.4

Underperforming investmentsome loss of interest or dividend possible, but still expecting a positive return on investment.5

Underperforming investment with expected loss of interest and some principal.


65

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Table of Contents

The
following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of December 31, 2017 and 2016:



December 31, 2017

December 31, 2016Investment Rating

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of Portfolio1

$
99,205


2
%
$
115,927


3
%2


3,125,386


78
%

2,719,833


70
%3


546,153


14
%

899,835


23
%4








85,427


2
%5


225,961


6
%

89,418


2
%​
​
​
​
​
​
​
​
​
​
​
​
​
​$
3,996,705


100
%
$
3,910,440


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


The
amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new
investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

Results of Operations

Comparison of the Years Ended December 31, 2017, 2016 and 2015

Revenues

Our investment income for the years ended December 31, 2017, 2016 and 2015 was as follows:



Years Ended December 31,2017

2016

2015Amount

Percentage of
Total Income

Amount

Percentage of
Total Income

Amount

Percentage of
Total IncomeInterest income

$
344,600


82
%
$
310,721


84
%
$
318,903


84
%Paid-in-kind interest income


32,981


8
%

40,900


11
%

27,585


7
%Fee income


41,175


10
%

18,119


5
%

31,682


9
%Dividend income














1,483


0
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total investment income(1)

$
418,756


100
%
$
369,740


100
%
$
379,653


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Such
revenues represent $366,567, $315,889 and $343,792 of cash income earned as well as $52,189, $53,851 and $35,861 in non-cash portions relating to accretion of
discount, PIK interest and accrual of limited partnership income for the years ended December 31, 2017, 2016 and 2015, respectively. Cash flows related to such non-cash revenues may not occur
for a number of reporting periods or years after such revenues are recognized.


The
level of investment income we receive is directly related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We expect the
dollar amount of interest and any dividend income that we earn to increase if the size of our investment portfolio increases and the proportion of directly originated investments in our portfolio
increases.

Fee
income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee
income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

66

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Table of Contents

Expenses

Our operating expenses for the years ended December 31, 2017, 2016 and 2015 were as follows:



Year Ended December 31,2017

2016

2015Management fees

$
88,938

$
76,580

$
75,997Subordinated income incentive fees


10,499


5,774


31,016Administrative services expenses


2,829


3,870


4,056Share transfer agent fees


2,723


2,884


2,757Accounting and administrative fees


1,608


1,392


1,405Interest expense


49,286


37,126


30,703Trustees' fees


996


962


970Offering costs





4,675


Expenses associated with our independent audit and related fees


524


484


552Compensation of our chief compliance officer(1)








10Legal fees


477


536


686Printing fees


1,417


2,203


1,717Insurance expense


186


226


316Other


1,101


1,381


1,873​
​
​
​
​
​
​
​
​
​
​Total operating expenses


160,584


138,093


152,058Less: Expense reimbursement from sponsor


(31,260
)




Add: Expense reimbursement due to sponsor


2,858





​
​
​
​
​
​
​
​
​
​
​Net operating expenses

$
132,182

$
138,093

$
152,058​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)On
April 1, 2015, James F. Volk was appointed as our chief compliance officer. Prior to that date, we had contracted with Vigilant Compliance, LLC to
provide the services of Salvatore Faia as our chief compliance officer. Mr. Volk is employed by FS Investments and will not receive any direct compensation from us in this capacity.




Year Ended
December 31,2017

2016

2015Ratio of operating expenses to average net assets


4.94
%

4.88
%

5.55
%Ratio of expense reimbursement from sponsor to average net assets


(0.96
)%




Ratio of expense recoupment to sponsor to average net assets


0.09
%




​
​
​
​
​
​
​
​
​
​
​Ratio of net operating expenses to average net assets


4.07
%

4.88
%

5.55
%Less: Ratio of income incentive fees, interest expense and offering costs to average net assets(1)


1.84
%

1.68
%

2.26
%​
​
​
​
​
​
​
​
​
​
​Ratio of net operating expenses, excluding certain expenses, to average net assets


2.23
%

3.20
%

3.30
%​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)Ratio
may be rounded in order to recompute the ending ratio of net operating expenses, excluding certain expenses, to average net assets.


Incentive
fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in
benchmark interest rates such as LIBOR, among other factors.

Expense Reimbursement

During the year ended December 31, 2017, we accrued $31,260 for expense reimbursements that FS Investments has agreed to pay.
During the year ended December 31, 2017, we offset $14,816 in management fees payable and $10,499 in subordinated income incentive fees payable by us to FS Advisor. During the three
months ended December 31, 2017, we accrued $5,945 for expense reimbursements that we intend to apply towards an offset in management fees payable by us to FS Advisor. Under the expense
reimbursement agreement, amounts reimbursed to us by FS Investments may become subject to repayment by us in future periods. During the year ended December 31, 2017, we paid $2,858 in
expense recoupments to FS Investments or its affiliates. During

67

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Table of Contents

the
years ended December 31, 2016 and 2015, we did not accrue any expense reimbursements that FS Investments has agreed to pay or pay any amounts in expense recoupments to
FS Investments or its affiliates. See Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of the expense reimbursement
agreement.

Net Investment Income

Our net investment income totaled $286,574 ($0.65 per share), $231,647 ($0.57 per share) and $227,595 ($0.67 per share) for the years ended
December 31, 2017, 2016 and 2015, respectively.

Net Realized Gains or Losses

Our net realized gains (losses) on investments and foreign currency for the years ended December 31, 2017, 2016 and 2015 were as follows:



Year Ended December 31,2017

2016

2015Net realized gain (loss) on investments(1)

$
(91,083
)
$
(251,431
)
$
(201,559
)Net realized gain (loss) on foreign currency


1





(210
)​
​
​
​
​
​
​
​
​
​
​Total net realized gain (loss)

$
(91,082
)
$
(251,431
)
$
(201,769
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)We
sold investments and received principal repayments of $710,040 and $721,608, respectively, during the year ended December 31, 2017, $680,239 and $544,813,
respectively, during the year ended December 31, 2016 and $590,726 and $209,808, respectively, during the year ended December 31, 2015.


Net Change in Unrealized Appreciation (Depreciation)

Our net change in unrealized appreciation (depreciation) on investments and foreign currency for the years ended December 31, 2017, 2016
and 2015 were as follows:



Year Ended December 31,2017

2016

2015Net change in unrealized appreciation (depreciation) on investments

$
(308,513
)
$
772,361

$
(537,036
)Net change in unrealized appreciation (depreciation) on foreign currency


51


7


(89
)​
​
​
​
​
​
​
​
​
​
​Total net change in unrealized appreciation (depreciation)

$
(308,462
)
$
772,368

$
(537,125
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


During
the year ended December 31, 2017, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by the performance of our directly
originated investments. During the year ended December 31, 2016, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by a general improvement in the
energy markets, a tightening of credit spreads and the performance of our anchor order and broadly syndicated investments. During the year ended December 31, 2015, the net change in unrealized
appreciation (depreciation) on our investments was primarily driven by a general widening of credit spreads in Energy markets and by the performance of our directly originated and opportunistic
investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the years ended December 31, 2017, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was $(112,970)
($(0.26) per share), $752,584 ($1.84 per share) and $(511,299) ($(1.51) per share), respectively.

68

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Table of Contents

Financial Condition, Liquidity and Capital Resources

Overview

As of December 31, 2017, we had $195,376 in cash, which we or our wholly-owned financing subsidiaries held in custodial accounts, and
$100,000 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. To seek to enhance our returns, we employ leverage as market conditions permit and
at the discretion of FS Advisor, but in no event may leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See
"Financing Arrangements." As of December 31, 2017, we also had broadly syndicated investments and opportunistic investments that
could be sold to create additional liquidity. As of December 31, 2017, we had four senior secured loan investments with aggregate unfunded commitments of $90,662 and two equity/other
investments with aggregate unfunded commitments of $8,751. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

Public Offering of Shares, Distribution Reinvestment Plan and Share Repurchase Program

In November 2016, we closed our continuous public offering of common shares to new investors. Following the closing of our continuous public
offering, we will continue to issue shares pursuant to our distribution reinvestment plan.

We
generate cash primarily from the issuance of shares under our distribution reinvestment plan and from cash flows from fees, interest and dividends earned from our investments as well
as principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of FS Advisor, but in no
event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See "Financing Arrangements."

Prior
to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares under our distribution reinvestment plan as well as from sales and
paydowns of existing investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one
year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.

For
additional information regarding our continuous public offering, distribution reinvestment plan and share repurchase program, see Note 3 to our consolidated financial
statements contained in this annual report on Form 10-K.

Financing Arrangements

We borrow funds to make investments to the extent we determine that additional capital would allow us to take advantage of additional investment
opportunities, the market for debt financing presents attractively priced debt financing opportunities and our board of trustees determines that leveraging our portfolio would be in our best interests
and the best interests of our shareholders. We do not currently anticipate issuing any preferred shares.

The
following table presents a summary of information with respect to our outstanding financing arrangements as of December 31, 2017:



Facility(1)

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Credit Facility

Revolving

L+3.25%

$


$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.35%


300,000




September 27, 2018(2)Deutsche Bank Credit Facility

Revolving

L+2.05%


340,000




June 11, 2018Fortress Facility

Term

L+5.00%(3)


155,000




November 6, 2020Goldman Facility

Term

L+3.72%


425,000




September 15, 2019​
​
​
​
​
​
​
​
​
​
​
​
​Total





$
1,220,000

$
100,000​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


(1)The
carrying amount outstanding under the facility approximates its fair value.(2)The
BNP facility generally is terminable upon 270 days' notice by either party. As of December 31, 2017, neither Berwyn Funding nor BNP had provided
notice of its intent to terminate the facility.


69

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Table of Contents

(3)As
described in Note 8 to our consolidated financial statements included herein, borrowings under the Fortress facility accrue interest at a rate equal to
LIBOR plus 5.00%, subject to a floor of 0.75%.


For
additional information regarding our financing arrangements, see Note 8 to our consolidated financial statements contained in this annual report on Form 10-K.

RIC Tax Treatment and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the
Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To
maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must
distribute to our shareholders, for each tax year, dividends generally of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary
income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we may,
in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the "spillover dividend" provisions of
Subchapter M of the Code. If we distribute a spillover dividend, such dividend will be included in a shareholder's gross income for the tax year in which the spillover distribution is paid. We
intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed
income unless we distribute in a timely manner to our shareholders of an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals
and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses (adjusted for certain ordinary losses), for the one-year
period ending October 31 of that calendar year and (3) any ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we
paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to our
shareholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our
U.S. shareholders, on December 31 of the calendar year in which the distribution was declared.

Prior
to the closing of our continuous public offering in November 2016, we declared regular cash distributions on a weekly basis, and paid such distributions on a monthly basis. Subject
to applicable legal restrictions and the sole discretion of our board of trustees, we intend to declare and pay regular cash distributions on a monthly basis. We will calculate each shareholder's
specific distribution amount for the period using record and declaration dates and each shareholder's distributions will begin to accrue on the date that common shares are issued to such shareholder.
From time to time, we may also pay special interim distributions in the form of cash or common shares at the discretion of our board of trustees. The timing and amount of any future distributions to
shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.

During
certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make will represent a return of capital. A return of
capital generally is a return of an investor's investment rather than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses
payable in connection with our continuous public offering, including any fees payable to FS Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder's
cost basis in our common shares, and will result in a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold. Each
year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders.

We
intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, unless shareholders elect to receive their cash
distributions in additional common shares under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. shareholder.

70

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Table of Contents

The
following table reflects the cash distributions per share that we have declared and paid on our common shares during the years ended December 31, 2017, 2016 and 2015:



DistributionFor the Year Ended December 31,

Per Share

Amount2015

$
0.7085

$
238,8332016

$
0.7085

$
288,9822017

$
0.7085

$
312,694


See
Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions, including a
reconciliation of our GAAP-basis net investment income to our tax-basis net investment income, the components of accumulated earnings on a tax basis and deferred taxes.

Critical Accounting Policies

Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that
require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that
may change in subsequent periods. In preparing the financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our
past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ
from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we
execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

We determine the net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by
our board of trustees. In connection with that determination, FS Advisor provides our board of trustees with portfolio company valuations which are based on relevant inputs, including, but not limited
to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services.

Accounting
Standards Codification Topic 820,Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the Financial Accounting
Standards Board, or the FASB, clarifies the definition of fair
value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820
defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC
Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as
quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little
or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

71

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Table of Contents

With
respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described
below:



Determination
of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the
possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of trustees may use any approved
independent third-party pricing or valuation services. However, our board of trustees is not required to determine fair value in accordance with the valuation provided by any single source, and may
use any relevant data, including information obtained from FS Advisor or any approved independent third-party valuation or pricing service that our board of trustees deems to be reliable in
determining fair value under the circumstances. Below is a description of factors that FS Advisor's management team, any approved independent third-party valuation services and our board of trustees
may consider when determining the fair value of our investments.

Valuation
of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility
in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted
cash flow models to arrive at fair value. Other factors that may be considered include the borrower's ability to adequately service its debt, the fair market value of the portfolio company in relation
to the face amount of its outstanding debt and the quality of collateral securing our debt investments.

For
convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the
security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

Our
equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of trustees, in its determination of fair value, may consider
various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon
the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition,
recapitalization, restructuring or other related items.

FS
Advisor's management team, any approved independent third-party valuation services and our board of trustees may also consider private merger and acquisition statistics, public
trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the
portfolio companies or industry practices in determining fair value. FS Advisor's management team, any approved independent third-party valuation services and our board of trustees may also consider
the

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size
and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the
smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of trustees, in consultation with FS Advisor's management team and any approved independent
third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily
available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the
security.

When
we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be
allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of trustees subsequently values these warrants or other equity
securities received at their fair value.

The
fair values of our investments are determined in good faith by our board of trustees. Our board of trustees is solely responsible for the valuation of our portfolio investments at
fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of trustees has delegated day-to-day responsibility for implementing our
valuation policy to FS Advisor's management team, and has authorized FS Advisor's management team to utilize independent third-party valuation and pricing services that have been approved by our board
of trustees. The valuation committee is responsible for overseeing FS Advisor's implementation of the valuation process.

See
Note 7 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding the fair value of our financial
instruments.

Revenue Recognition

Security transactions are accounted for on the trade date. We record interest income on an accrual basis to the extent that we expect to collect
such amounts. We record dividend income on the ex-dividend date. We do not accrue as a receivable interest or dividends on loans and securities if we have reason to doubt our ability to collect such
income. Our policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. We consider many factors relevant to an investment when placing
it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the
underlying investment, the value of the underlying
collateral, bankruptcy status, if any, and any other facts or circumstances relevant to the investment. If there is reasonable doubt that we will receive any previously accrued interest, then the
previously recognized interest income will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the
remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest payments become current and are likely to remain current based on our judgment.

Loan
origination fees, original issue discount and market discount are capitalized and we amortize such amounts as interest income over the respective term of the loan or security. Upon
the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees are recorded
as fee income when earned. We record prepayment premiums on loans and securities as fee income when we earn such amounts.

In
May 2014, the Financial Accounting Standards Board, or the FASB, issued ASU No. 2014-09,Revenue from Contracts with Customers,
which provides for revenue recognition based on the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. When it becomes effective, the
new revenue recognition guidance in ASU No. 2014-09 will replace most revenue recognition guidance under existing GAAP. In 2016, the FASB issued additional guidance that clarified, amended and
technically corrected prior revenue recognition guidance. The new revenue recognition guidance applies to all entities and all contracts with customers to provide goods or services in the ordinary
course of business, excluding, among other things, financial instruments as well as certain other contractual rights and obligations. For public entities, the new standards are effective

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during
the interim and annual periods beginning after December 15, 2017, with early adoption permitted. The standards permit the use of either the retrospective or cumulative effect transition
method. As a result, we are required to adopt the new guidance as of January 1, 2018 and expect to do so using the cumulative effect method applied to in-scope contracts with customers that
have not been completed as of the date of adoption.

In
connection with our evaluation of the impact of the new revenue recognition guidance on its revenue recognition polices for structuring and other non-recurring upfront fees, we have
performed an analysis to identify contracts with customers within the scope of the new revenue recognition guidance and to determine the related performance obligation and transaction price. Under the
new revenue recognition guidance, we expect to recognize revenue for in-scope contracts based on the transaction price as the performance obligation is fulfilled. In our analysis, we considered, among
other matters, the nature of the performance obligation and constraints on including variable consideration in the transaction price. In addition, we considered the costs incurred to obtain and
fulfill in-scope contracts with customers to determine whether such costs would be required to be capitalized. Based on our analysis, we expect to provide additional revenue recognition disclosures
required under the new standard but do not otherwise expect a material effect on our consolidated financial statements.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in
Unrealized Gains or Losses on Foreign Currency

Gains or losses on the sale of investments are calculated by using the specific identification method. We measure realized gains or losses by
the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but
considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously
recorded unrealized gains or losses when gains or losses are realized and the respective unrealized gain or loss on foreign currency for any foreign denominated investments we may hold. Net change in
unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, receivables or accruals during the reporting period due to the impact of foreign currency
fluctuations.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for
uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements. Recognition of a
tax benefit or liability with respect to an uncertain tax position is required only when the position is "more likely than not" to be sustained assuming examination by taxing authorities. We recognize
interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the years ended December 31, 2017, 2016 and
2015, we did not incur any interest or penalties.

See
Note 2 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our significant accounting policies.

Contractual Obligations

We have entered into an agreement with FS Advisor to provide us with investment advisory and administrative services. Payments for investment
advisory services under the investment advisory and administrative services agreement are equal to (a) an annual base management fee of 2.0% of the average value of our gross assets and
(b) an incentive fee based on our performance. Effective January 1, 2018, FS Advisor agreed to (a) permanently waive a portion of its base management fee to which it is entitled
under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of our gross assets (gross assets equals total assets as set forth on
our consolidated balance sheets) and (b) waive incentive fees on income for a period of twelve months ending December 31, 2018. See Note 4 to our consolidated financial statements
contained
in this annual report on Form 10-K for a discussion of this agreement and for the amount of fees and expenses accrued under these agreements during the years ended December 31, 2017,
2016 and 2015.

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A
summary of our significant contractual payment obligations for the repayment of outstanding indebtness at December 31, 2017 is as follows:



Payments Due By PeriodMaturity Date(1)

Total

Less than
1 year

1-3 years

3-5 years

More than 5
yearsBNP Facility(2)(3)

September 27, 2018

$
300,000

$
300,000








Deutsche Bank Credit Facility(3)

June 11, 2018

$
340,000

$
340,000








Fortress Facility(3)

November 6, 2020

$
155,000




$
155,000





Goldman Facility(3)

September 15, 2019

$
425,000




$
425,000








(1)Amounts
outstanding under the financing arrangements will mature, and all accrued and unpaid interest thereunder will be due and payable, on the maturity date.(2)The
BNP facility generally is terminable upon 270 days' notice by either party. As of December 31, 2017, neither Berwyn Funding nor BNP had provided
notice of its intent to terminate the facility.(3)At
December 31, 2017, no amounts remained unused under the financing arrangement.


As
of December 31, 2017, no amounts were outstanding under the Barclays credit facility. All borrowed amounts under the facility will mature, and all accrued and unpaid interest
thereunder will be due and payable, on May 18, 2021.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices.

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of
the average value of our gross assets and an incentive fee based on our performance. We commenced accruing fees under the investment advisory and administrative services agreement on July 18,
2011, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears. Effective January 1, 2018, FS Advisor agreed to (a) permanently waive
a portion of its base management fee to which it is entitled under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of our
gross assets (gross assets equals total assets as set forth on our consolidated balance sheets) and (b) waive incentive fees on income for a period of twelve months ending December 31,
2018.

The
dealer manager for our continuous public offering was FS Investment Solutions, which is one of our affiliates. Under the dealer manager agreement among us, FS Advisor and FS
Investment
Solutions, or the dealer manager agreement, FS Investment Solutions was entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in our continuous
public offering, all or a portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of our
continuous public offering in November 2016.

See
Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our related party transactions and
relationships, including a description of the fees and amounts due to FS Advisor, capital contributions by FS Advisor and GSO, potential conflicts of interest, our exemptive relief order, our expense
reimbursement arrangement with FS Investments and FS Benefit Trust's purchases of our common shares.

See
"BusinessThe Transition of Advisory Services" for information regarding GSO's resignation as our investment sub-advisor and our potential advisory relationship with
FS/EIG Advisor.

Recent Developments

See "Item 1. BusinessThe Transition of Investment Advisory Services" for information regarding our potential investment
advisory relationship with FS/EIG Advisor.

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Waiver of Base Management Fee and Incentive Fee

Effective January 1, 2018, FS Advisor agreed to (a) permanently waive a portion of its base management fee to which it is entitled
under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of our gross assets and (b) waive incentive fees on income for a
period of twelve months ending December 31, 2018.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of December 31, 2017, 40.1% of our portfolio
investments (based on fair value) paid variable interest rates, 49.6% paid fixed interest rates, 0.7% were income producing equity or other investments and the remainder (9.6%) consisted of non-income
producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and to
declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing
until benchmark interest rates increase beyond a threshold amount. To the extent that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond
this threshold would make it easier for us to meet or exceed the hurdle rate applicable to the subordinated incentive fee on income and may result in a substantial increase in our net investment
income and to the amount of incentive fees payable to FS Advisor with respect to our increased pre-incentive fee net investment income.

Pursuant
to the terms of each credit facility and financing arrangement, all credit facilities and financing arrangements borrow at a floating rate based on a benchmark interest rate. To
the extent that any present or future credit facilities or other financing arrangements that we or any of our subsidiaries enter into are based on a floating interest rate, we will be subject to risks
relating to changes in market interest rates. In periods of rising interest rates when we or our subsidiaries have such debt outstanding or financing arrangements in effect, our interest expense would
increase, which could reduce our net investment income, especially to the extent we hold fixed rate investments.

The
following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the
composition of our investment portfolio, including the accrual status of our investments, and our borrowing arrangements in effect as of December 31, 2017 (dollar amounts are presented in
thousands):



Basis Point Change in Interest Rates

Increase
(Decrease)
in Interest
Income

Increase
(Decrease)
in Interest
Expense

Increase
(Decrease) in
Net Interest
Income

Percentage
Change in
Net Interest
IncomeDown 100 basis points

$
(8,940
)
$
(12,691
)
$
3,751


1.3
%No Change











Up 100 basis points

$
15,028

$
12,691

$
2,337


0.8
%Up 300 basis points

$
45,084

$
38,072

$
7,012


2.4
%Up 500 basis points

$
75,139

$
63,453

$
11,686


4.0
%


We
expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize
our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes
in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the years ended December 31, 2017, 2016 and
2015, we did not engage in interest rate hedging activities.

In
addition, we may have risk regarding portfolio valuation. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
OperationsCritical Accounting PoliciesValuation of Portfolio Investments."

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Item 8.    Financial Statements and Supplementary Data.

Index to Financial Statements





PageManagement's Report on Internal Control over Financial Reporting


78Reports of Independent Registered Public Accounting Firm


79Consolidated Balance Sheets as of December 31, 2017 and 2016


81Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015


82Consolidated Statements of Changes in Net Assets for the years ended December 31, 2017, 2016 and 2015


83Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015


84Consolidated Schedules of Investments as of December 31, 2017 and 2016


85Notes to Consolidated Financial Statements


99


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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. In connection with the
preparation of our annual financial statements, management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management's
assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, we have
concluded that, as of December 31, 2017, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting as of December 31, 2017
has been audited by our independent registered public accounting firm.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Trustees and Shareholders of
FS Energy and Power Fund
Philadelphia, Pennsylvania

Opinion on the Internal Control Over Financial Reporting

We have audited FS Energy and Power Fund's (the Company) internal control over financial reporting as of December 31, 2017, based on
criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets, including the
consolidated schedules of investments, of FS Energy and Power Fund as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in net assets and cash flows
for each of the three years in the period ended December 31, 2017 and our report dated March 7, 2018 expressed an unqualified opinion.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/
RSM US LLP

Blue
Bell, Pennsylvania
March 7, 2018

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Trustees and Shareholders of
FS Energy and Power Fund
Philadelphia, Pennsylvania

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets, including the consolidated schedules of investments, of FS Energy and Power Fund
(the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of FS Energy and Power Fund as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), FS Energy and Power Fund's internal control over
financial reporting as of December 31, 2017, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013, and our report dated
March 7, 2018 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our procedures included confirmation of securities owned as of December 31, 2017 and 2016 by correspondence with the custodians and brokers or by other appropriate
auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

/s/
RSM US LLP

We
have served as the auditor of one or more FS Investments investment companies since 2007.

Blue
Bell, Pennsylvania
March 7, 2018

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Table of Contents



FS Energy and Power Fund

Consolidated Balance Sheets
(in thousands, except share and per share amounts)





December 31,2017

2016AssetsInvestments, at fair valueNon-controlled/unaffiliated investments (amortized cost$3,490,683 and $2,959,314, respectively)

$
3,281,536

$
2,838,377Non-controlled/affiliated investments (amortized cost$839,619 and $977,010, respectively)


715,169


1,071,032Controlled/affiliated investments (amortized cost$27,464 and $26,664, respectively)





1,031​
​
​
​
​
​
​
​Total investments, at fair value (amortized cost$4,357,766 and $3,962,988, respectively)


3,996,705


3,910,440Cash


195,376


317,520Receivable for investments sold and repaid


66,337


22Interest receivable


51,293


37,857Deferred financing costs


720


2,443Reimbursement due from sponsor(1)


5,945


Prepaid expenses and other assets


55


15​
​
​
​
​
​
​
​Total assets

$
4,316,431

$
4,268,297​
​
​
​
​
​
​
​LiabilitiesPayable for investments purchased

$
88,033

$
6,046Credit facilities payable (net of deferred financing costs of $1,883 and $1,045, respectively)(2)


1,218,117


547,620Repurchase agreement payable (net of deferred financing costs of $0 and $91, respectively)(2)





324,909Shareholder distributions payable


10,938


9,474Management fees payable


21,834


20,855Administrative services expense payable


361


1,477Interest payable


6,033


4,328Trustees' fees payable


252


250Other accrued expenses and liabilities


4,821


4,444​
​
​
​
​
​
​
​Total liabilities


1,350,389


919,403​
​
​
​
​
​
​
​Commitments and contingencies ($28,104 and $0, respectively)(3)Shareholders' equityPreferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding





Common shares, $0.001 par value, 700,000,000 shares authorized, 446,045,135 and 440,162,095 shares issued and outstanding, respectively


446


440Capital in excess of par value(4)


3,814,303


3,802,263Accumulated net realized gains (losses) on investments and gain/loss on foreign currency(4)


(487,379
)

(387,452
)Accumulated undistributed (distributions in excess of) net investment income(4)


(247
)

(13,738
)Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency


(361,081
)

(52,619
)​
​
​
​
​
​
​
​Total shareholders' equity


2,966,042


3,348,894​
​
​
​
​
​
​
​Total liabilities and shareholders' equity

$
4,316,431

$
4,268,297​
​
​
​
​
​
​
​Net asset value per common share at year end

$
6.65

$
7.61


(1)See
Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by
the Company to its investment adviser and affiliates.(2)See
Note 8 for a discussion of the Company's financing arrangements.(3)See
Note 9 for a discussion of the Company's commitments and contingencies.(4)See
Note 5 for a discussion of the sources of distributions paid by the Company.




See notes to consolidated financial statements.

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FS Energy and Power Fund

Consolidated Statements of Operations
(in thousands, except share and per share amounts)





Year Ended December 31,2017

2016

2015Investment incomeFrom non-controlled/unaffiliated investments:Interest income

$
272,881

$
249,340

$
289,676Paid-in-kind interest income


21,463


31,931


15,359Fee income


40,519


10,428


22,316Dividend income








1,483From non-controlled/affiliated investments:Interest income


71,719


61,381


21,503Paid-in-kind interest income


11,518


8,969


Fee income


656


7,691


681From controlled/affiliated investments:Interest income








7,724Paid-in-kind interest income








12,226Fee income








8,685​
​
​
​
​
​
​
​
​
​
​Total investment income


418,756


369,740


379,653​
​
​
​
​
​
​
​
​
​
​Operating expensesManagement fees


88,938


76,580


75,997Subordinated income incentive fees(1)


10,499


5,774


31,016Administrative services expenses


2,829


3,870


4,056Share transfer agent fees


2,723


2,884


2,757Accounting and administrative fees


1,608


1,392


1,405Interest expense(2)


49,286


37,126


30,703Trustees' fees


996


962


970Offering costs





4,675


Other general and administrative expenses


3,705


4,830


5,154​
​
​
​
​
​
​
​
​
​
​Total operating expenses


160,584


138,093


152,058Less: Expense reimbursement from sponsor(3)


(31,260
)




Add: Expense recoupment to sponsor(3)


2,858





​
​
​
​
​
​
​
​
​
​
​Net expenses


132,182


138,093


152,058​
​
​
​
​
​
​
​
​
​
​Net investment income


286,574


231,647


227,595​
​
​
​
​
​
​
​
​
​
​Realized and unrealized gain/lossNet realized gain (loss) on investments:Non-controlled/unaffiliated


(88,725
)

(252,003
)

(201,559
)Non-controlled/affiliated


(2,358
)

572


Net realized gain (loss) on foreign currency


1





(210
)Net change in unrealized appreciation (depreciation) on investments:Non-controlled/unaffiliated


(88,210
)

614,513


(462,587
)Non-controlled/affiliated


(218,472
)

174,231


(77,970
)Controlled/affiliated


(1,831
)

(16,383
)

3,521Net change in unrealized gain (loss) on foreign currency


51


7


(89
)​
​
​
​
​
​
​
​
​
​
​Total net realized and unrealized gain (loss)


(399,544
)

520,937


(738,894
)​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
(112,970
)
$
752,584

$
(511,299
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Per share informationbasic and dilutedNet increase (decrease) in net assets resulting from operations (Earnings per Share)

$
(0.26
)
$
1.84

$
(1.51
)​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


442,570,942


408,967,511


337,879,830​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)See
Note 2 and Note 4 for a discussion of the methodology employed by the Company in calculating the subordinated income incentive fees.(2)See
Note 8 for a discussion of the Company's financing arrangements.(3)See
Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by
the Company to its investment adviser and affiliates.




See notes to consolidated financial statements.

82

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Table of Contents



FS Energy and Power Fund

Consolidated Statements of Changes in Net Assets
(in thousands)





Year Ended December 31,2017

2016

2015OperationsNet investment income

$
286,574

$
231,647

$
227,595Net realized gain (loss) on investments and foreign currency


(91,082
)

(251,431
)

(201,769
)Net change in unrealized appreciation (depreciation) on investments


(308,513
)

772,361


(537,036
)Net change in unrealized gain (loss) on foreign currency


51


7


(89
)​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


(112,970
)

752,584


(511,299
)​
​
​
​
​
​
​
​
​
​
​Shareholder distributions(1)Distributions from net investment income


(311,103
)

(273,529
)

(224,586
)Distributions from net realized gain on investments








(14,247
)Distributions representing tax return of capital


(1,591
)

(15,453
)

​
​
​
​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(312,694
)

(288,982
)

(238,833
)​
​
​
​
​
​
​
​
​
​
​Capital share transactions(2)Issuance of common shares





354,727


498,830Reinvestment of shareholder distributions


186,471


180,011


152,401Repurchases of common shares


(143,659
)

(67,307
)

(40,009
)Offering costs








(8,950
)​
​
​
​
​
​
​
​
​
​
​Net increase in net assets resulting from capital share transactions


42,812


467,431


602,272​
​
​
​
​
​
​
​
​
​
​Total increase (decrease) in net assets


(382,852
)

931,033


(147,860
)Net assets at beginning of year


3,348,894


2,417,861


2,565,721​
​
​
​
​
​
​
​
​
​
​Net assets at end of year

$
2,966,042

$
3,348,894

$
2,417,861​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Accumulated undistributed (distributions in excess of) net investment income(1)

$
(247
)
$
(13,738
)
$
14,024​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)See
Note 5 for a discussion of the sources of distributions paid by the Company.(2)See
Note 3 for a discussion of the Company's capital share transactions.




See notes to consolidated financial statements.

83

---



Table of Contents



FS Energy and Power Fund

Consolidated Statements of Cash Flows
(in thousands)





Year Ended December 31,2017

2016

2015Cash flows from operating activitiesNet increase (decrease) in net assets resulting from operations

$
(112,970
)
$
752,584

$
(511,299
)Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating
activities:Purchases of investments


(1,757,630
)

(965,957
)

(1,195,947
)Paid-in-kind interest


(32,981
)

(40,900
)

(27,585
)Proceeds from sales and repayments of investments


1,327,660


702,830


800,534Net realized (gain) loss on investments


91,083


251,431


201,559Net change in unrealized (appreciation) depreciation on investments


308,513


(772,361
)

537,036Accretion of discount


(22,910
)

(15,985
)

(9,918
)Amortization of deferred financing costs


3,689


3,207


2,707Amortization of deferred offering costs





4,675


(Increase) decrease in receivable for investments sold and repaid


(66,315
)

13,770


37,461(Increase) decrease in interest receivable


(13,436
)

(2,936
)

12,276(Increase) decrease in expense reimbursement due from sponsor(1)


(5,945
)




(Increase) decrease in prepaid expenses and other assets


(40
)

232


(217
)Increase (decrease) in payable for investments purchased


81,987


6,046


(20,094
)Increase (decrease) in management fees payable


979


2,517


426Increase (decrease) in subordinated income incentive fees payable





(12,048
)

(94
)Increase (decrease) in administrative services expense payable


(1,116
)

(395
)

219Increase (decrease) in interest payable(2)


1,705


1,282


158Increase (decrease) in trustees' fees payable


2


(4
)

25Increase (decrease) in other accrued expenses and liabilities


377


(1,014
)

2,209​
​
​
​
​
​
​
​
​
​
​Net cash provided by (used in) operating activities


(197,348
)

(73,026
)

(170,544
)​
​
​
​
​
​
​
​
​
​
​Cash flows from financing activitiesIssuance of common shares





361,642


501,904Reinvestment of shareholder distributions


186,471


180,011


152,401Repurchases of common shares


(143,659
)

(67,307
)

(40,009
)Offering costs incurred





(4,675
)

(8,950
)Shareholder distributions


(311,230
)

(279,556
)

(238,835
)Borrowings under credit facilities(2)


878,263


65,400


109,600Borrowings under repurchase agreement(2)





16


135,871Repayments of credit facilities(2)


(206,928
)

(232,245
)

(295,390
)Repayments of repurchase facility(2)


(325,000
)




Deferred financing costs paid


(2,713
)

(1,607
)

(2,311
)​
​
​
​
​
​
​
​
​
​
​Net cash provided by financing activities


75,204


21,679


314,281​
​
​
​
​
​
​
​
​
​
​Total increase (decrease) in cash


(122,144
)

(51,347
)

143,737Cash at beginning of year


317,520


368,867


225,130​
​
​
​
​
​
​
​
​
​
​Cash at end of year

$
195,376

$
317,520

$
368,867​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Supplemental disclosureExcise and state taxes paid

$
2

$
183

$
400​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Non-cash purchases of investments

$
(103,988
)
$
(522,222
)
$
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​Non-cash sales of investments

$
103,988

$
522,222

$
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


(1)See
Note 4 for a discussion of expense reimbursements payable to the Company by its investment adviser and affiliates and recoupment of such amounts paid by
the Company to its investment adviser and affiliates.(2)See
Note 8 for a discussion of the Company's credit facilities. During the years ended December 31, 2017, 2016 and 2015, the Company paid $38,938,
$20,885 and $18,419, respectively, in interest expense on the credit facilities and $4,954, $11,752 and $9,419 respectively, in interest expense pursuant to the repurchase agreement.




See notes to consolidated financial statements.

84

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Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments
As of December 31, 2017
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien31.2%Abaco Energy Technologies LLC

(g)(j)

Service & Equipment

L+700, 2.5% PIK (2.5% Max PIK)


1.0
%
11/20/20

$
86,207

$
82,722

$
84,697Allied Wireline Services, LLC

(k)(l)

Service & Equipment

L+400, 5.5% PIK (5.5% Max PIK)


1.5
%
2/28/19


115,104


114,625


113,377Altus Power America, Inc.

(j)(aa)

Power

L+750


1.5
%
9/30/21


77,378


77,378


75,830Altus Power America, Inc.

(e)(aa)

Power

L+750


1.5
%
9/30/21


23,872


23,872


23,395BL Sand Hills Unit, L.P.

(l)(aa)

Upstream

Prime+650


3.5
%
12/17/21


20,000


17,369


20,000Cactus Wellhead, LLC

(f)(j)

Service & Equipment

L+600


1.0
%
7/31/20


41,225


39,865


41,293Cimarron Energy Inc.



Service & Equipment

L+1150 PIK (L+1150 Max PIK)


1.0
%
12/15/19


25,470


25,470


10,379CITGO Holding, Inc.

(f)

Downstream

L+850


1.0
%
5/12/18


26,014


26,149


26,340Crestwood Holdings LLC

(f)

Midstream

L+800


1.0
%
6/19/19


29,151


29,210


29,297Eagle Midstream Canada Finance Inc.

(l)(m)

Midstream

8.5%




9/27/20


175,000


175,000


175,000Gulf Finance, LLC

(f)

Midstream

L+525


1.0
%
8/25/23


18,485


18,030


16,687Industrial Group Intermediate Holdings, LLC



Service & Equipment

L+800


1.3
%
5/31/20


23,027


23,027


23,373JSS Holdings, Inc.

(l)

Service & Equipment

L+800, 0.0% PIK (2.5% Max PIK)


1.0
%
3/31/23


14,941


14,809


15,173JSS Holdings, Inc.

(e)

Service & Equipment

L+800, 0.0% PIK (2.5% Max PIK)


1.0
%
3/31/23


2,727


2,727


2,770Kraken Oil & Gas LLC



Upstream

L+750


1.0
%
5/7/21


35,000


34,660


34,913Kraken Oil & Gas LLC

(e)

Upstream

L+750


1.0
%
5/7/21


25,000


25,000


24,938Lusk Operating LLC

(p)(r)(bb)

Upstream

Prime+500 PIK (8.8% Max PIK)


3.3
%
1/31/18


29,297


27,464


MB Precision Holdings LLC



Service & Equipment

L+725, 2.25% PIK (2.25% Max PIK)


1.3
%
1/23/21


13,793


13,793


12,638Panda Temple Power, LLC

(j)(p)(r)

Power

L+625


1.0
%
3/6/22


9,923


9,782


7,219Panda Temple Power, LLC



Power

L+900


1.0
%
4/28/18


377


377


378Power Distribution, Inc.



Power

L+725


1.3
%
1/25/23


29,928


29,928


30,377Strike, LLC

(j)

Midstream

L+800


1.0
%
5/30/19


19,600


19,358


19,698Strike, LLC

(j)

Midstream

L+800


1.0
%
11/30/22


23,750


23,160


24,106Swift Worldwide Resources US Holdings Corp.

(j)

Service & Equipment

L+1000, 1.0% PIK (1.0% Max PIK)


1.0
%
7/20/21


58,468


58,468


59,637UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


24,210


22,006


23,796Warren Resources, Inc.

(j)(l)(aa)

Upstream

L+900, 1.0% PIK (1.0% Max PIK)


1.0
%
5/22/20


79,233


79,233


81,214​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,013,482


976,525Unfunded Loan Commitments
















(51,599
)

(51,599
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















961,883


924,926​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

85

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansSecond Lien26.8%Aethon United BR LP



Upstream

L+675


1.0
%
9/8/23

$
85,938

$
84,698

$
85,052Aethon United BR LP

(e)

Upstream

L+675


1.0
%
9/8/23


39,063


39,063


38,660Arena Energy, LP

(j)(k)

Upstream

L+900, 4.0% PIK (4.0% Max PIK)


1.0
%
1/24/21


107,656


107,656


102,360Chief Exploration & Development LLC

(f)

Upstream

L+650


1.0
%
5/16/21


16,156


15,685


15,928Chisholm Oil and Gas Operating, LLC

(j)(k)(l)

Upstream

L+800


1.0
%
3/21/24


196,000


196,000


195,971Emerald Performance Materials, LLC

(f)

Downstream

L+775


1.0
%
8/1/22


11,819


11,764


11,838Fieldwood Energy LLC

(f)(p)(r)

Upstream

L+713


1.3
%
9/30/20


33,591


34,068


11,252Granite Acquisition, Inc.

(f)

Power

L+725


1.0
%
12/19/22


18,694


18,330


18,825Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,463


14,981Horn Intermediate Holdings, Inc.

(j)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


50,501P2 Upstream Acquisition Co.

(f)(j)

Service & Equipment

L+800


1.0
%
4/30/21


42,399


42,046


39,218Penn Virginia Holding Corp.

(m)

Upstream

L+700


1.0
%
9/29/22


50,000


50,000


50,053SilverBow Resources, Inc.

(m)

Upstream

L+750


1.0
%
12/15/24


15,000


14,850


14,850Talos Production LLC

(k)(l)

Upstream

11.0%




4/3/22


43,250


40,495


42,926Titan Energy Operating, LLC

(k)(aa)

Upstream

2.0%, L+1100 PIK (L+1100 Max PIK)


1.0
%
2/23/20


116,964


100,902


62,026UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


85,192


79,263


81,146​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















899,533


835,587Unfunded Loan Commitment
















(39,063
)

(39,063
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansSecond Lien
















860,470


796,524​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Senior Secured Bonds22.3%Black Swan Energy Ltd.

(j)(m)

Upstream

9.0%




1/20/24


90,000


90,000


90,675CITGO Holding, Inc.

(f)

Downstream

10.8%




2/15/20


9,000


9,045


9,653CSVC Acquisition Corp.

(f)

Service & Equipment

7.8%




6/15/25


30,608


30,608


29,460EP Energy LLC

(f)(h)(m)(o)

Upstream

8.0%




2/15/25


54,880


52,838


40,131EP Energy LLC

(g)(h)(m)

Upstream

9.4%




5/1/24


68,614


63,012


60,134FourPoint Energy, LLC

(j)(k)(l)(aa)

Upstream

9.0%




12/31/21


235,125


227,815


238,946Mirant Mid-Atlantic Trust

(f)(h)(o)

Power

10.1%




12/30/28


31,752


33,728


32,052Ridgeback Resources Inc.

(k)(m)(aa)

Upstream

12.0%




12/29/20


3,887


3,825


3,887Sunnova Energy Corp.

(j)

Power

6.0%, 6.0% PIK (6.0% Max PIK)




10/24/18


33,671


33,671


33,671Velvet Energy Ltd.

(j)(l)(m)

Upstream

9.0%




10/5/23


120,000


120,000


121,542​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















664,542


660,151​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

86

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Subordinated Debt40.6%Alta Mesa Holdings, LP

(f)(h)

Upstream

7.9%




12/15/24

$
20,425

$
20,425

$
22,459Archrock Partners, L.P.

(h)(m)(o)

Midstream

6.0%




4/1/21


8,555


7,714


8,587Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




10/1/22


14,283


12,661


14,337Ascent Resources Utica Holdings, LLC

(f)(h)(j)(o)

Upstream

10.0%




4/1/22


200,000


200,000


216,132Bellatrix Exploration Ltd.

(f)(h)(m)(o)

Upstream

8.5%




5/15/20


60,120


59,240


57,415Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




7/15/25


44,759


44,759


47,165Canbriam Energy Inc.

(f)(h)(j)(m)(o)

Upstream

9.8%




11/15/19


115,200


113,222


117,648Compressco Partners, LP

(f)(h)(o)

Service & Equipment

7.3%




8/15/22


20,050


19,929


18,972Covey Park Energy LLC

(h)(o)

Upstream

7.5%




5/15/25


8,333


8,333


8,705Eclipse Resources Corp.

(f)(h)(m)(o)

Upstream

8.9%




7/15/23


62,745


57,444


64,549EV Energy Partners, L.P.

(f)(h)(o)(p)

Upstream

8.0%




4/15/19


48,814


39,678


24,895Extraction Oil & Gas Holdings, LLC

(h)(o)

Upstream

7.9%




7/15/21


37,500


37,500


39,777Genesis Energy, L.P.

(f)(m)

Midstream

6.8%




8/1/22


23,540


23,036


24,477Genesis Energy, L.P.

(f)(m)

Midstream

6.0%




5/15/23


15,280


14,264


15,519Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


849


849


864Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


5,398


5,398


5,492Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


1,115


1,115


1,135Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


1,050


1,050


1,068Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




12/2/26


923


923


940Global Partners L.P.

(f)(h)(m)(o)

Midstream

6.3%




7/15/22


68,335


68,188


70,385Global Partners L.P.

(f)(m)

Midstream

7.0%




6/15/23


2,824


2,466


2,909Great Western Petroleum, LLC

(f)(h)(o)

Upstream

9.0%




9/30/21


35,830


35,708


37,398Gulfport Energy Corp.

(h)(m)(o)

Upstream

6.0%




10/15/24


10,000


10,000


10,010Hammerhead Resources Inc.

(j)(m)

Upstream

9.0%




7/10/22


100,000


97,229


100,000Jupiter Resources Inc.

(h)(m)

Upstream

8.5%




10/1/22


76,125


72,383


47,007Lonestar Resources America Inc.

(f)(h)

Upstream

8.8%




4/15/19


24,200


24,055


25,289Lonestar Resources America Inc.

(g)

Upstream

11.3%




1/1/23


25,000


25,000


25,563Martin Midstream Partners L.P.

(f)(h)(m)(o)

Midstream

7.3%




2/15/21


24,660


24,059


25,073Moss Creek Resources, LLC

(l)

Upstream

L+800


1.5
%
4/7/22


65,000


65,000


66,443ONEOK, Inc.

(f)(m)

Midstream

7.5%




9/1/23


12,600


11,789


15,114Tenrgys, LLC

(k)(p)(r)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


34,313Whiting Petroleum Corp.

(h)(m)(o)

Upstream

5.0%




3/15/19


11,685


11,034


11,990Whiting Petroleum Corp.

(f)(m)

Upstream

5.8%




3/15/21


7,000


6,479


7,219WildHorse Resource Development Corp.

(h)(m)

Upstream

6.9%




2/1/25


10,000


9,930


10,242Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


23,925


23,930


24,433​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















1,229,790


1,203,524​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

87

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other13.9%(n)Abaco Energy Technologies LLC, Common Equity

(r)

Service & Equipment









6,944,444

$
6,944

$
1,042Abaco Energy Technologies LLC, Preferred Equity

(r)

Service & Equipment









28,942,003


1,447


5,065Allied Downhole Technologies, LLC, Common Equity

(k)(q)(r)

Service & Equipment









7,431,113


7,223


1,858Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(k)(q)(r)

Service & Equipment









5,344,680


1,865


1,336Altus Power America Holdings, LLC, Common Equity

(k)(r)(aa)

Power









12,474,205


12,474


1,871Altus Power America Holdings, LLC, Preferred Equity

(k)(s)(aa)

Power

9.0%, 5.0% PIK (5.0% Max PIK)







25,792,683


25,793


25,793AP Exhaust Holdings, LLC, Class A1 Common Units

(k)(q)(r)

Service & Equipment









8





AP Exhaust Holdings, LLC, Class A1 Preferred Units

(k)(q)(r)

Service & Equipment









803


895


811Ascent Resources Utica Holdings, LLC, Common Equity

(r)(t)

Upstream









148,692,909


44,700


37,173BL Sand Hills Unit, L.P., Net Profits Interest

(r)(v)(aa)

Upstream









N/A


5,180


966BL Sand Hills Unit, L.P., Overriding Royalty Interest

(v)(aa)

Upstream









N/A


740


726BL Sand Hills Unit, L.P., Series A Units

(i)(r)(aa)

Upstream









29,117


24,019


7,000Chisholm Oil and Gas, LLC, Series A Units

(i)(r)

Upstream









13,905,565


13,906


13,815Cimarron Energy Holdco Inc., Common Equity

(r)

Service & Equipment









3,675,487


3,323


Cimarron Energy Holdco Inc., Preferred Equity

(r)

Service & Equipment









626,806


627


Extraction Oil & Gas, Inc., Common Equity

(k)(r)(z)

Upstream









1,140,637


11,250


16,323FourPoint Energy, LLC, Common Equity, Class C-II-A Units

(k)(q)(r)(aa)

Upstream









66,000


66,000


19,140FourPoint Energy, LLC, Common Equity, Class D Units

(k)(q)(r)(aa)

Upstream









12,374


8,176


3,619FourPoint Energy, LLC, Common Equity, Class E-II Units

(i)(r)(aa)

Upstream









150,937


37,734


43,395FourPoint Energy, LLC, Common Equity, Class E-III Units

(i)(k)(q)(r)(aa)

Upstream









222,750


55,688


64,598Global Jet Capital Holdings, LP, Preferred Equity

(r)

Service & Equipment









2,785,562


2,786


2,507Industrial Group Intermediate Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment









472,755


473


709JSS Holdco, LLC, Net Profits Interest

(r)

Service & Equipment









N/A





103Lusk Operating LLC, Common Equity

(r)(u)(bb)

Upstream









2,000





MB Precision Investment Holdings LLC, Class A-2 Units

(k)(q)(r)

Service & Equipment









490,213


490


PDI Parent LLC, Common Equity

(r)

Power









1,384,615


1,385


1,454Ridgeback Resources Inc., Common Equity

(k)(l)(m)(r)(w)(aa)

Upstream









9,599,928


58,985


58,284SandRidge Energy, Inc., Common Equity

(h)(l)(m)(o)(r)(z)

Upstream









1,009,878


22,542


21,278Sunnova Energy Corp., Common Equity

(r)

Power









6,667,368


25,026


Sunnova Energy Corp., Preferred Equity

(r)

Power









1,117,214


5,948


4,502Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(x)

Service & Equipment









3,750,000


6,029


2,062Synergy Offshore LLC, Preferred Equity

(k)(p)(r)(y)

Upstream









71,131


93,009


25,465TE Holdings, LLC, Common Equity

(i)(r)

Upstream









2,225,950


18,921


3,617TE Holdings, LLC, Preferred Equity

(l)(r)

Upstream









1,475,531


14,734


14,018The Brock Group, Inc., Common Equity

(j)(r)

Service & Equipment









786,094


15,617


16,390Titan Energy, LLC, Common Equity

(k)(r)(z)(aa)

Upstream









555,496


17,554


844Total Safety Holdings, LLC, Common Equity

(j)(r)

Service & Equipment









12,897


4,707


4,659Warren Resources, Inc., Common Equity

(l)(r)(aa)

Upstream









4,415,749


20,754


7,507White Star Petroleum Holdings, LLC, Common Equity

(i)(r)

Upstream









4,867,084


4,137


3,650​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















641,081


411,580​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS134.8%















$
4,357,766


3,996,705​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(34.8%)



















(1,030,663
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,966,042​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

88

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)






(a)Security
may be an obligation of one or more entities affiliated with the named company.(b)Certain
variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of
December 31, 2017, the three-month London Interbank Offered Rate, or LIBOR or 'L,' was 1.69% and the U.S. Prime Lending Rate, or Prime, was 4.50%. PIK means paid-in-kind.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Investments
classified as Level 3 in the Company's fair value hierarchy whereby fair value was determined by the Company's board of trustees, unless otherwise
noted (see Note 7).(e)Security
is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon
funding.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Position
or portion thereof unsettled as of December 31, 2017.(h)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility
with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(i)Security
held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.(j)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility
with Goldman Sachs Bank USA (see Note 8).(k)Security
or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility
with Fortress Credit Co LLC (see Note 8).(l)Security
or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Barclays Bank PLC (see Note 8).(m)The
investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any
asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of December 31,
2017, 71.2% of the Company's total assets represented qualifying assets.(n)Listed
investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.(o)Security
or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the terms and
conditions governing the prime brokerage facility with BNP (see Note 8). As of December 31, 2017, the fair value of securities rehypothecated by BNP was $279,961.(p)Security
was on non-accrual status as of December 31, 2017.(q)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(r)Security
is non-income producing.(s)Security
is held within EP Altus Investments, LLC, a wholly-owned subsidiary of Foxfields Funding LLC.(t)Security
held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.(u)Security
held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.(v)Security
held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.(w)Investment
denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2017.(x)Investment
denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2017.(y)Security
held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(z)Security
is classified as Level 1 in the Company's fair value hierarchy (See Note 7).


See notes to consolidated financial statements.

89

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)






(aa)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's voting
securities and generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or
policies of such portfolio company. As of December 31, 2017, the Company held investments in portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to
"control". The following table presents certain information with respect to such portfolio companies for the year December 31, 2017:






Portfolio Company

Fair Value at
December 31, 2016

Purchases,
Paid-In-Kind,
Interest and
Transfers In

Sales,
Repayments
and
Transfers
Out

Accretion
of Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
December 31, 2017

Interest
Income(2)

PIK
Income(2)

Fee
Income(2)Senior Secured LoansFirst LienAltus Power America, Inc.(1)

$
73,294

$
5,433

$


$


$


$
(3,374
)
$
75,353

$
7,152

$


$
BL Sand Hills Unit, L.P.





64,187


(44,460
)




(2,358
)

2,631


20,000


3,857





Sunnova Asset Portfolio 5 Holdings, LLC


151,148





(149,652
)

2,217





(3,713
)




6,992





Warren Resources, Inc.


78,437


796











1,981


81,214


7,818


796


Senior Secured LoansSecond LienTitan Energy Operating, LLC


85,427


9,863


(332
)

4,237





(37,169
)

62,026


16,269


9,863


Senior Secured BondsFourPoint Energy, LLC


240,709





(2,227
)

2,183





(1,719
)

238,946


22,834





Ridgeback Resources Inc.


3,887








16





(16
)

3,887


473





Sunnova Energy Corp(3)





33,671


(33,671
)













2,738


859


656Equity/OtherAltus Power America Holdings, LLC, Common Equity


12,474














(10,603
)

1,871








Altus Power America Holdings, LLC, Preferred Equity


23,982


1,811














25,793


3,586





BL Sand Hills Unit, L.P., Net Profits Interest





5,180











(4,214
)

966








BL Sand Hills Unit, L.P., Overriding Royalty Interest





740











(14
)

726








BL Sand Hills Unit, L.P., Series A Units





24,019











(17,019
)

7,000








FourPoint Energy, LLC, Common Equity, Class C-II-A Units


31,845














(12,705
)

19,140








FourPoint Energy, LLC, Common Equity, Class D Units


6,032














(2,413
)

3,619








FourPoint Energy, LLC, Common Equity, Class E-II Units


125,670





(30,938
)







(51,337
)

43,395








FourPoint Energy, LLC, Common Equity, Class E-III Units


107,477














(42,879
)

64,598








Ridgeback Resources Inc., Common Equity


58,985














(701
)

58,284








Sunnova Energy Corp., Common Equity(3)


36,204





(25,026
)







(11,178
)










Sunnova Energy Corp., Preferred Equity(3)


3,141


2,868


(5,948
)







(61
)










Titan Energy, LLC, Common Equity


13,332














(12,488
)

844








Warren Resources, Inc., Common Equity


18,988














(11,481
)

7,507








​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
1,071,032

$
148,568

$
(292,254
)
$
8,653

$
(2,358
)
$
(218,472
)
$
715,169

$
71,719

$
11,518

$
656​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Security
includes a partially unfunded commitment with an amortized cost of $23,872 and a fair value of $23,395.(2)Interest,
PIK and fee income presented for the year ended December 31, 2017.(3)The
Company held this investment as of December 31, 2017 but as of such date, was not deemed to be an "affiliated person" of the portfolio company or deemed
to "control" the portfolio company,


See notes to consolidated financial statements.

90

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2017
(in thousands, except share amounts)






(bb)Under
the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has
the power to exercise control over the management or policies of such portfolio company. As of December 31, 2017, the Company held investments in a portfolio company of which it is deemed to be
an "affiliated person" of and deemed to "control". The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an
"affiliated person" of and deemed to "control" for the year ended December 31, 2017:




Portfolio Company

Fair Value at
December 31, 2016

Purchases,
Paid-In-Kind,
Interest and
Transfers In

Sales,
Repayments
and
Transfers
Out

Accretion
of Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
December 31, 2017Senior Secured LoansFirst LienLusk Operating LLC


1,031


1,800











(2,831
)

Equity/OtherLusk Operating LLC, Common Equity








(1,000
)







1,000


​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
1,031

$
1,800

$
(1,000
)






$
(1,831
)
$
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

91

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments
As of December 31, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien27.2%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

L+700, 2.5% PIK (2.5% Max PIK)


1.0
%
11/20/20

$
60,455

$
58,038

$
45,795Allied Wireline Services, LLC

(g)(i)(k)(l)

Service & Equipment

L+400, 5.5% PIK (5.5% Max PIK)


1.5
%
2/28/19


108,920


108,099


106,877Alon USA Partners, L.P.

(g)(i)(j)(m)

Downstream

L+800


1.3
%
11/26/18


11,063


11,199


11,035Altus Power America, Inc.

(j)(p)

Power

L+750


1.5
%
9/30/21


71,945


71,945


73,294Altus Power America, Inc.

(e)(p)

Power

L+750


1.5
%
9/30/21


29,305


29,305


29,854AP Exhaust Acquisition, LLC

(g)(l)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


14,309BL Sand Hills Unit, L.P.

(l)

Upstream

Prime+650


3.5
%
12/17/17


40,821


35,451


38,321BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


15,000


13,027


14,081Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


56,392


54,715


51,458Cimarron Energy Inc.

(g)

Service & Equipment

L+775, 3.8% PIK (3.8% Max PIK)


1.0
%
12/15/19


23,664


23,664


24,019CITGO Holding, Inc.

(f)

Downstream

L+850


1.0
%
5/12/18


16,822


16,947


17,109Crestwood Holdings LLC

(f)(g)

Midstream

L+800


1.0
%
6/19/19


29,703


29,794


29,146EnergySolutions, LLC

(i)(j)

Service & Equipment

L+575


1.0
%
5/29/20


18,193


17,965


18,375Gulf Finance, LLC

(f)(i)

Midstream

L+525


1.0
%
8/25/23


18,953


18,407


19,095Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


22,240


22,240


22,573Lusk Operating LLC

(r)(z)(aa)

Upstream

Prime+500 PIK (8.8% Max PIK)


3.3
%
1/31/17


27,497


25,664


1,031MB Precision Holdings LLC

(g)

Service & Equipment

L+725, 1.5% PIK (1.5% Max PIK)


1.3
%
1/23/20


12,853


12,853


12,355Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,155


32,241


31,794P2 Upstream Acquisition Co.

(f)

Service & Equipment

L+400


1.0
%
10/30/20


5,101


4,801


4,865Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,825


9,677


8,744Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,531


27,761


25,604ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


10,839


10,833


9,837Strike, LLC

(e)

Midstream

L+800


1.0
%
5/30/19


35,000


34,482


34,475Strike, LLC

(i)(j)(bb)

Midstream

L+800


1.0
%
11/30/22


52,500


50,937


51,975Sunnova Asset Portfolio 5 Holdings, LLC

(j)(l)(p)

Power

12%, 0.0% PIK (12.0% Max PIK)




11/14/21


149,652


147,435


151,148Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+1100


1.0
%
7/20/21


58,614


58,614


58,614UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


5,432


4,275


5,085Warren Resources, Inc.

(k)(p)

Upstream

L+900, 1.0% PIK (1.0% Max PIK)


1.0
%
5/22/20


78,437


78,437


78,437Warren Resources, Inc.

(e)(p)

Upstream

L+900, 1.0% PIK (1.0% Max PIK)


1.0
%
5/22/20


5,590


5,590


5,590​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,030,207


994,895Unfunded Loan Commitments
















(82,404
)

(82,404
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















947,803


912,491​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

92

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)








Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansSecond Lien26.1%Alison US LLC

(f)(j)(m)

Service & Equipment

L+850


1.0
%
8/29/22

$
23,722

$
22,591

$
23,011Ameriforge Group Inc.

(g)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,352


5,707AP Exhaust Acquisition, LLC



Service & Equipment

12.0% PIK (12.0% Max PIK)




9/28/21


3,763


3,763


3,279Arena Energy, LP

(i)(k)

Upstream

L+900, 4.0% PIK (4.0% Max PIK)


1.0
%
1/24/21


103,410


103,410


103,927Ascent ResourcesMarcellus, LLC



Upstream

L +750


1.0
%
8/4/21


10,000


9,874


1,325Ascent ResourcesUtica, LLC

(g)(j)(k)(l)

Upstream

L+950


1.5
%
9/30/18


285,257


284,490


287,753Brock Holdings III, Inc.

(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,699


28,273Chief Exploration & Development LLC

(f)(i)

Upstream

L+650


1.3
%
5/16/21


36,576


35,139


35,935Emerald Performance Materials, LLC

(f)

Downstream

L+775


1.0
%
8/1/22


11,819


11,754


11,834EP Energy, LLC

(f)(m)

Upstream

L+875


1.0
%
6/30/21


17,209


17,379


18,047Fieldwood Energy LLC



Upstream

L+713


1.3
%
9/30/20


41,047


41,788


29,246Granite Acquisition, Inc.

(f)

Power

L+725


1.0
%
12/19/22


20,150


19,718


19,445Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,372


11,875Horn Intermediate Holdings, Inc.

(g)(j)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


50,250Jonah Energy LLC

(f)(i)

Upstream

L+650


1.0
%
5/12/21


34,293


33,325


32,579Neff Rental LLC

(f)(j)

Service & Equipment

L+625


1.0
%
6/9/21


33,789


33,089


33,657Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/17/20


15,000


14,927


14,738P2 Upstream Acquisition Co.

(f)(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


34,099


34,144


31,243Titan Energy Operating, LLC

(k)(p)

Upstream

2.0%, L+900 PIK (L+900 Max PIK)


1.0
%
2/23/20


104,409


87,134


85,427UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


36,192


36,227


25,696W3 Co.

(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,943


6,695WP CPP Holdings, LLC

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


14,680


14,394


13,927​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















948,762


873,869​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

93

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)








Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured Bonds11.9%Calpine Corp.

(f)(m)

Power

5.3%




6/1/26

$
19,800

$
19,809

$
19,508Cheniere Corpus Christi Holdings, LLC

(f)

Midstream

7.0%




6/30/24


4,000


4,134


4,357CITGO Holding, Inc.

(f)

Downstream

10.8%




2/15/20


9,000


9,063


9,645EP Energy LLC

(h)(m)

Upstream

8.0%




11/29/24


10,000


10,000


10,780FourPoint Energy, LLC

(j)(k)(l)(p)

Upstream

9.0%




12/31/21


235,125


227,859


240,709Mirant Mid-Atlantic Trust

(f)(h)

Power

10.1%




12/30/28


31,752


33,838


26,936Ridgeback Resources Inc.

(k)(m)(p)

Upstream

12.0%




12/29/20


3,887


3,809


3,887Velvet Energy Ltd.

(j)(l)(m)

Upstream

9.0%




10/5/23


80,000


80,000


81,792​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















388,512


397,614​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt31.2%Alta Mesa Holdings, LP

(h)

Upstream

7.9%




12/15/24


20,425


20,425


21,242Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




4/1/21


8,555


7,505


8,384Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




10/1/22


14,283


12,400


13,881Bellatrix Exploration Ltd.

(f)(h)(m)

Upstream

8.5%




5/15/20


53,590


52,560


52,753Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


43,311


42,479


44,502Calpine Corp.

(f)(m)

Power

5.8%




1/15/25


5,100


5,093


4,941Canbriam Energy Inc.

(f)(h)(j)(m)

Upstream

9.8%




11/15/19


115,200


112,341


121,536Compressco Partners, LP

(f)(h)(m)

Service & Equipment

7.3%




8/15/22


20,050


19,908


18,972Crestwood Equity Partners L.P.

(f)(m)

Midstream

6.1%




3/1/22


5,500


5,500


5,641Dynegy Finance I/II Inc.

(f)(m)

Power

7.6%




11/1/24


22,542


21,968


20,894Dynegy Finance I/II Inc.

(f)(m)

Power

8.0%




1/15/25


12,000


11,995


11,243Eclipse Resources Corp.

(f)(h)(m)(o)

Upstream

8.9%




7/15/23


59,745


53,883


62,334EP Energy LLC

(h)(m)

Upstream

9.4%




5/1/20


19,970


16,006


18,440EV Energy Partners, L.P.

(h)(m)

Upstream

8.0%




4/15/19


48,814


36,060


34,609Extraction Oil & Gas Holdings, LLC

(h)(o)

Upstream

7.9%




7/15/21


37,500


37,500


40,313


See notes to consolidated financial statements.

94

---



Table of Contents

FS Energy and Power Fund

Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)








Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Genesis Energy, L.P.

(f)(m)

Midstream

6.8%




8/1/22

$
23,540

$
22,949

$
24,473Genesis Energy, L.P.

(f)(m)

Midstream

6.0%




5/15/23


15,280


14,116


15,599GenOn Energy, Inc.

(h)

Power

7.9%




6/15/17


4,000


3,945


2,868GenOn Energy, Inc.

(h)

Power

9.9%




10/15/20


32,698


34,010


22,419Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


732


732


727Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


4,649


4,649


4,620Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


961


961


955Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


904


904


899Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




12/2/26


795


795


795Global Partners L.P.

(f)(h)(m)(o)

Midstream

6.3%




7/15/22


69,435


69,264


66,831Global Partners L.P.

(h)(m)(o)

Midstream

7.0%




6/15/23


2,824


2,419


2,744Great Western Petroleum, LLC

(f)(h)

Upstream

9.0%




9/30/21


23,830


23,692


24,932Gulfport Energy Corp.

(f)(m)

Upstream

6.0%




10/15/24


10,000


10,000


10,205Jupiter Resources Inc.

(h)(m)

Upstream

8.5%




10/1/22


71,125


67,772


61,760Laredo Petroleum, Inc.

(f)(m)

Upstream

7.4%




5/1/22


25,384


25,093


26,375Lonestar Resources America Inc.

(h)

Upstream

8.8%




4/15/19


21,500


21,566


19,780Martin Midstream Partners L.P.

(f)(h)(m)

Midstream

7.3%




2/15/21


29,660


29,102


29,438NRG Energy, Inc.

(f)(m)

Power

7.3%




5/15/26


28,000


27,823


27,965ONEOK, Inc.

(f)(h)(m)

Midstream

7.5%




9/1/23


28,000


26,887


31,910SandRidge Energy, Inc.

(l)(m)(r)

Upstream

0.0%




10/4/20


10,550


14,060


13,245Synergy Resources Corp.

(j)(m)

Upstream

9.0%




6/14/21


40,000


40,000


41,700Talos Production LLC

(h)

Upstream

9.8%




2/15/18


43,250


43,249


24,004Tenrgys, LLC

(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


73,125Whiting Petroleum Corp.

(h)(m)

Upstream

5.0%




3/15/19


11,685


10,552


11,739Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


23,925


23,934


24,374​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















1,049,097


1,043,167​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

95

---



Table of Contents

FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other20.4%(n)Abaco Energy Technologies LLC, Common Equity

(r)

Service & Equipment


6,944,444

$
6,944

$
347Abaco Energy Technologies LLC, Preferred Equity

(r)

Service & Equipment


28,942,003


1,447


1,447Allied Downhole Technologies, LLC, Common Equity

(k)(q)(r)

Service & Equipment


7,431,113


7,223


5,945Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(k)(q)(r)

Service & Equipment


5,344,680


1,865


4,276Altus Power America Holdings, LLC, Common Equity

(p)(r)

Power


12,474,205


12,474


12,474Altus Power America Holdings, LLC, Preferred Equity

(p)(s)

Power


23,981,707


23,982


23,982AP Exhaust Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment


811


811


41Ascent Resources Utica Holdings, LLC, Common Equity

(r)(t)

Upstream


148,692,909


44,700


33,307BL Sand Hills Unit, L.P., Net Profits Interest

(r)(v)

Upstream


N/A


5,180


570BL Sand Hills Unit, L.P., Overriding Royalty Interest

(v)

Upstream


N/A


740


212Cimarron Energy Holdco Inc., Common Equity

(r)

Service & Equipment


3,201,631


2,991


1,921Extraction Oil & Gas, Inc. Common Equity

(k)(r)

Upstream


1,140,637


11,250


22,858Fortune Creek Co-Invest I L.P., LP Interest

(m)(r)(w)(z)

Midstream


N/A


16,697


553FourPoint Energy, LLC, Common Equity, Class C-II-A Units

(k)(p)(q)(r)

Upstream


66,000


66,000


31,845FourPoint Energy, LLC, Common Equity, Class D Units

(k)(p)(q)(r)

Upstream


12,374


8,176


6,032FourPoint Energy, LLC, Common Equity, Class E-II Units

(p)(r)(cc)

Upstream


274,688


68,672


125,670FourPoint Energy, LLC, Common Equity, Class E-III Units

(k)(p)(q)(r)(cc)

Upstream


222,750


55,688


107,477Global Jet Capital Holdings, LP, Preferred Equity

(r)

Service & Equipment


2,785,562


2,786


2,786Industrial Group Intermediate Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment


472,755


473


827Lusk Operating LLC, Common Equity

(r)(u)(aa)

Upstream


2,000


1,000


MB Precision Investment Holdings LLC, Class A-2 Units

(k)(q)(r)

Service & Equipment


490,213


490


98Ridgeback Resources Inc., Common Equity

(k)(l)(m)(p)(r)(w)

Upstream


9,599,928


58,985


58,985SandRidge Energy, Inc., Common Equity

(h)(m)(o)(r)

Upstream


447,491


11,187


10,538Summit Midstream Partners, LLC, Preferred Equity

(l)

Midstream


24,830


24,830


24,955Sunnova Energy Corp., Common Equity

(p)(r)

Power


6,667,368


25,026


36,204Sunnova Energy Corp., Preferred Equity

(p)(r)

Power


578,468


3,080


3,141Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(x)

Service & Equipment


3,750,000


6,029


1,875Synergy Offshore LLC, Preferred Equity

(k)(y)

Upstream


66,250


83,988


89,040TE Holdings, LLC, Common Equity

(r)(cc)

Upstream


2,225,950


18,921


16,695TE Holdings, LLC, Preferred Equity

(r)

Upstream


1,475,531


14,734


22,133Titan Energy, LLC, Common Equity

(k)(p)(r)

Upstream


555,496


17,554


13,332Warren Resources, Inc., Common Equity

(l)(p)(r)

Upstream


4,415,749


20,754


18,988White Star Petroleum Holdings, LLC, Common Equity

(r)(cc)

Upstream


4,867,084


4,137


4,745​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other









628,814


683,299​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS116.8%








$
3,962,988


3,910,440​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(16.8%)












(561,546
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%











$
3,348,894​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to consolidated financial statements.

96

---



Table of Contents

FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)



(a)

Security may be an obligation of one or more entities affiliated with the named company.(b)

Certain variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of December 31, 2016, the three-month London Interbank
Offered Rate, or LIBOR, was 1.00% and the U.S. Prime Lending Rate, or Prime, was 3.75%.(c)

Denominated in U.S. dollars, unless otherwise noted.(d)

Fair value determined by the Company's board of trustees (see Note 7).(e)

Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.(f)

Security or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Deutsche Bank AG, New York Branch (see
Note 8).(g)

Security or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Natixis, New York Branch (see
Note 8).(h)

Security or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility with BNP Paribas Prime Brokerage, Inc., or BNP.
Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the
prime brokerage facility with BNP (see Note 8).(i)

Security or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Wells Fargo Securities, LLC (see
Note 8).(j)

Security or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase transaction with Goldman Sachs Bank USA (see
Note 8).(k)

Security or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility with Fortress Credit Co LLC (see
Note 8).(l)

Security or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility with Barclays Bank PLC (see
Note 8).(m)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than a qualifying asset, unless, at the time
the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of December 31, 2016, 77.1% of the Company's total assets represented qualifying assets.(n)

Listed investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.(o)

Security or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP
(see Note 8). As of December 31, 2016, the fair value of securities rehypothecated by BNP was $106,488.(p)

Under the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's voting securities and generally is deemed to "control" a portfolio
company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2016, the Company held investments in portfolio
companies of which it is deemed to be an "affiliated person" but is not deemed to "control". The following table presents certain information with respect to such portfolio companies for the year ended December 31, 2016:






Portfolio Company

Fair Value at
December 31, 2015

Purchases,
Paid-in-Kind
Interest and
Other

Sales,
Repayments
and Other

Accretion of
Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
December 31, 2016

Interest
Income

Fee
IncomeSenior Secured LoansFirst LienAltus Power America, Inc.




$
88,820

$
(16,875
)






$
1,349

$
73,294

$
5,835


Sunnova Asset Portfolio 5 Holdings, LLC




$
258,383

$
(114,519
)
$
1,991

$
566

$
4,727

$
151,148

$
21,050

$
7,356Warren Resources, Inc.




$
78,437













$
78,437

$
11,477

$
335Senior Secured LoansSecond LienTitan Energy Operating, LLC




$
85,609




$
1,525




$
(1,707
)
$
85,427

$
5,685


Senior Secured BondsFourPoint Energy, LLC

$
222,069




$
(55,688
)
$
1,535




$
72,793

$
240,709

$
24,737


Ridgeback Resources Inc.




$
3,809










$
78

$
3,887

$
12


Equity/OtherAltus Power America Holdings, LLC, Common Equity




$
12,474













$
12,474





Altus Power America Holdings, LLC, Preferred Equity




$
23,982













$
23,982

$
1,554


FourPoint Energy, LLC, Common Equity, Class C-II-A Units

$
46,200













$
(14,355
)
$
31,845





FourPoint Energy, LLC, Common Equity, Class D Units

$
8,724













$
(2,692
)
$
6,032





FourPoint Energy, LLC, Common Equity, Class E-II Units




$
68,672










$
56,998

$
125,670





FourPoint Energy, LLC, Common Equity, Class E-III Units




$
55,688










$
51,789

$
107,477





Ridgeback Resources Inc., Common Equity




$
58,985













$
58,985





Sunnova Energy Corp., Common Equity




$
25,026










$
11,178

$
36,204





Sunnova Energy Corp., Preferred Equity




$
46,196

$
(43,122
)



$
6

$
61

$
3,141





Titan Energy, LLC, Common Equity




$
17,554










$
(4,222
)
$
13,332





Warren Resources, Inc., Common Equity




$
20,754










$
(1,766
)
$
18,988








See notes to consolidated financial statements.

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Table of Contents

FS Energy and Power Fund
Consolidated Schedule of Investments (Continued)
As of December 31, 2016
(in thousands, except share amounts)



(q)

Security held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(r)

Security is non-income producing.(s)

Security is held within EP Altus Investments, LLC, a wholly-owned subsidiary of the Company.(t)

Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.(u)

Security held within FSEP-BBH, Inc., a wholly-owned subsidiary of the Company.(v)

Security held within EP Burnett Investments, Inc., a wholly-owned subsidiary of the Company.(w)

Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2016.(x)

Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2016.(y)

Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(z)

Security was on non-accrual status as of December 31, 2016.(aa)

Under the 1940 Act, the Company generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or
policies of such portfolio company. As of December 31, 2016, the Company held an investment in one portfolio company of which it is deemed to be an "affiliated person" of and deemed to "control". The following table presents certain information
with respect to investments in portfolio companies of which the Company was deemed to be an "affiliated person" of and deemed to "control" for the year ended December 31, 2016:




Portfolio Company

Fair Value at
December 31, 2015

Purchases,
Paid-in-Kind
Interest and
Other

Sales,
Repayments
and Other

Accretion of
Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
December 31, 2016

Interest
Income

Fee
IncomeSenior Secured LoansFirst LienLusk Operating LLC




$
17,414










$
(16,383
)
$
1,031





Senior Secured BondsSunnova Asset Portfolio 5 Holdings, LLC

$
244,349




$
(244,349
)
















Equity/OtherLusk Operating LLC, Common Equity


























Sunnova Holdings, LLC, Common Equity

$
29,561




$
(29,561
)





















(bb)

Position or portion thereof unsettled as of December 31, 2016.(cc)

Security held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.


See notes to consolidated financial statements.

98

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Table of Contents



FS Energy and Power Fund        Notes to Consolidated Financial Statements  (in thousands, except share and per share amounts)

Note 1. Principal Business and Organization

FS Energy and Power Fund, or the Company, was formed as a Delaware statutory trust under the Delaware Statutory Trust Act on September 16, 2010 and formally commenced investment
operations on July 18, 2011 upon raising gross proceeds in excess of $2,500, or the minimum offering requirement, from sales of its common shares of beneficial interest, or common shares, in
its continuous public offering to persons who were not affiliated with the Company or the Company's investment adviser, FS Investment Advisor, LLC, or FS Advisor, a private investment
firm that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, and an affiliate of the Company.

The
Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally
managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment
company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31, 2017, the Company had five wholly-owned financing
subsidiaries, seven wholly-owned subsidiaries through which it holds interests in certain portfolio companies and two wholly-owned subsidiaries through which it expects to hold interests in certain
portfolio companies. The audited consolidated financial statements include both the Company's accounts and the accounts of its wholly-owned subsidiaries as of December 31, 2017. All significant
intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated subsidiaries are subject to U.S. federal and state income taxes.

The
Company's investment objective is to generate current income and long-term capital appreciation by investing primarily in privately-held U.S. companies in the energy and power
industry. The Company's investment policy is to invest, under normal circumstances, at least 80% of its total assets in securities of energy and power related, or Energy, companies. The Company
considers Energy companies to be those companies that engage in the exploration, development, production, gathering, transportation, processing, storage, refining, distribution, mining, generation or
marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power, including those companies that provide equipment or services to companies engaged in any of the foregoing.

As
the Company previously announced on December 11, 2017, GSO Capital Partners LP, or GSO, intends to resign as the investment sub-adviser and terminate the investment
sub-advisory agreement, dated April 28, 2011, or the investment sub-advisory agreement, that FS Advisor has entered into with GSO, effective April 9, 2018 (the date of such termination,
the GSO end date). In connection with
GSO's resignation as the Company's investment sub-adviser, FS Advisor and its affiliates and EIG Asset Management, LLC and its affiliates, or EIG, desire to enter into a relationship whereby
FS Advisor and EIG will jointly provide management, investment advisory and administrative services to us through FS/EIG Advisor, LLC, or FS/EIG Advisor, a newly-formed investment
adviser jointly operated by FS Advisor and EIG.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation:The accompanying audited consolidated financial statements of the Company have been prepared in accordance with
U.S. generally
accepted accounting principles, or GAAP. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under
Accounting Standards Codification Topic 946,Financial ServicesInvestment Companies. The Company has evaluated the impact of subsequent
events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)

Use of Estimates:The preparation of the audited consolidated financial statements in conformity with GAAP requires management to make
estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. Many of the amounts have been rounded, and all amounts are in thousands, except share and per share amounts.

Cash and Cash Equivalents:The Company considers all highly liquid investments with original maturities of three months or less to be
cash
equivalents. The Company's cash and cash equivalents are maintained with high credit quality financial institutions, which are members of the Federal Deposit Insurance Corporation.

Valuation of Portfolio Investments:The Company determines the net asset value of its investment portfolio each quarter. Securities are
valued at
fair value as determined in good faith by the Company's board of trustees. In connection with that determination, FS Advisor provides the Company's board of trustees with portfolio company valuations
which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations
prepared by independent third-party valuation services.

Accounting
Standards Codification Topic 820,Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the Financial Accounting
Standards Board, or the FASB, clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and
annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These
tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active
markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists,
therefore requiring an entity to develop its own assumptions.

With
respect to investments for which market quotations are not readily available, the Company undertakes a multi-step valuation process each quarter, as described
below:



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FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)



Determination
of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company's consolidated financial statements refer to the uncertainty with respect
to the possible effect of such valuations and any change in such valuations on the Company's consolidated financial statements. In making its determination of fair value, the Company's board of
trustees may use any approved independent third-party pricing or valuation services. However, the Company's board of trustees is not required to determine fair value in accordance with the valuation
provided by any single source, and may use any relevant data, including information obtained from FS Advisor or any approved independent third-party valuation or pricing service that it deems to be
reliable in determining fair value under the circumstances. Below is a description of factors that FS Advisor's management team, any approved independent third-party valuation services and the
Company's board of trustees may consider when determining the fair value of its investments.

Valuation
of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility
in future interest rates,
call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company may incorporate these factors into discounted cash flow models to
arrive at fair value. Other factors that may be considered include the borrower's ability to adequately service its debt, the fair market value of the portfolio company in relation to the face amount
of its outstanding debt and the quality of collateral securing its debt investments.

For
convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the
security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used.

The
Company's equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The Company's board of trustees, in its determination of fair
value, may consider various factors, such as multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book
value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company's actual investment position. For example,
adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items.

FS
Advisor's management team, any approved independent third-party valuation services and the Company's board of trustees may also consider private merger and acquisition statistics,
public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. FS
Advisor's management team, any approved independent third-party valuation services and the Company's board of trustees may also consider the size and scope of a portfolio company and its specific
strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to
comparable firms, as well as such other factors as its board of trustees, in consultation with FS Advisor's management team and any approved independent third-party valuation services, if applicable,
may consider relevant in assessing fair value. Generally, the value of the Company's equity interests in public companies for which market quotations are readily available is based upon the most
recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security.

101

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FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)

When
the Company receives warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will
be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. The Company's board of trustees subsequently values these warrants or
other equity securities received at their fair value.

The
fair values of the Company's investments are determined in good faith by its board of trustees. The Company's board of trustees is responsible for the valuation of the Company's
portfolio
investments at fair value as determined in good faith pursuant to the Company's valuation policy and consistently applied valuation process. The Company's board of trustees has delegated day-to-day
responsibility for implementing its valuation policy to FS Advisor's management team, and has authorized FS Advisor's management team to utilize independent third-party valuation and pricing services
that have been approved by its board of trustees. The valuation committee is responsible for overseeing FS Advisor's implementation of the valuation policy.

Revenue Recognition:Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis
to the extent
that it expects to collect such amounts. The Company records dividend income on the ex-dividend date. The Company does not accrue as a receivable interest or dividends on loans and securities if it
has reason to doubt its ability to collect such income. The Company's policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The
Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and
business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances relevant to
the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the interest income will be written-off. Payments received on non-accrual investments
may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal
and interest become current and are likely to remain current based on the Company's judgment.

Loan
origination fees, original issue discount and market discount are capitalized and the Company amortizes such amounts as interest income over the respective term of the loan or
security. Upon the prepayment of a loan or security, any unamortized loan origination fees and original issue discount are recorded as interest income. Structuring and other non-recurring upfront fees
are recorded as fee income when earned. The Company records prepayment premiums on loans and securities as fee income when it receives such amounts.

In
May 2014, the Financial Accounting Standards Board, or the FASB, issued ASU No. 2014-09,Revenue from Contracts with Customers,which provides for revenue recognition based on the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. When it becomes effective, the
new revenue recognition guidance in ASU No. 2014-09 will replace most revenue recognition guidance under existing GAAP. In 2016, the FASB issued additional guidance that clarified, amended and
technically corrected prior revenue recognition guidance. The new revenue recognition guidance applies to all entities and all contracts with customers to provide goods or services in the ordinary
course of business, excluding, among other things, financial instruments as well as certain other contractual rights and obligations. For public entities, the new standards are effective during the
interim and annual periods beginning after December 15, 2017, with early adoption permitted. The standards permit the use of either the retrospective or cumulative effect transition method. As
a result, the Company is required to adopt the new guidance as of January 1, 2018 and

102

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FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)

expects
to do so using the cumulative effect method applied to in-scope contracts with customers that have not been completed as of the date of adoption.

In
connection with its evaluation of the impact of the new revenue recognition guidance on its revenue recognition polices for structuring and other non-recurring upfront fees, the
Company has performed an analysis to identify contracts with customers within the scope of the new revenue recognition guidance and to determine the related performance obligation and transaction
price. Under the new revenue recognition guidance, the Company expects to recognize revenue for in-scope contracts based on the transaction price as the performance obligation is fulfilled. In its
analysis, the Company considered, among other matters, the nature of the performance obligation and constraints on including variable consideration in the transaction price. In addition, the Company
considered the costs incurred to obtain and fulfill in-scope contracts with customers to determine whether such costs would be required to be capitalized. Based on its analysis, the Company expects to
provide additional revenue recognition disclosures required under the new standard but does not otherwise expect a material effect on its consolidated financial statements.

Net Realized Gains or Losses, Net Change in Unrealized Appreciation or Depreciation and Net Change in Unrealized Gains or Losses on Foreign
Currency:Gains or losses on the sale of investments are calculated by using the specific identification method. The Company measures realized gains or losses by
the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but
considering unamortized fees. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously
recorded unrealized gains or losses when gains or losses are realized and the respective unrealized gain or loss on foreign currency for any foreign denominated investments it may hold. Net change in
unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, receivables or accruals during the reporting period due to the impact of foreign currency
fluctuations.

Capital Gains Incentive Fee:The Company entered into an investment advisory and administrative services agreement with FS Advisor,
dated as of
April 28, 2011, which was amended on August 10, 2012, and which, as amended, is referred to herein as the investment advisory and administrative services agreement. Pursuant to the terms
of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of
such agreement). Such fee equals 20.0% of the Company's incentive fee capital gains (i.e., the Company's realized capital gains on a cumulative basis from inception, calculated as of the end of
the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive
fees. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

The
Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive
fees that would be payable to FS Advisor as if the Company's entire portfolio was liquidated at its fair value as of the balance
sheet date even though FS Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee:Pursuant to the investment advisory and administrative services agreement, FS Advisor may also be
entitled to
receive a subordinated incentive fee on income. The subordinated incentive fee on income, which is calculated and payable quarterly in arrears, equals 20.0% of the Company's "pre-incentive fee net
investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to

103

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)

1.625%
per quarter, or an annualized hurdle rate of 6.5%. As a result, FS Advisor does not earn this incentive fee for any quarter until the Company's pre-incentive fee net investment income for such
quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including proceeds from its
distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the
Company's share repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a "catch-up" fee equal to the amount of
the pre-incentive fee net investment income in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals 2.031%, or 8.125% annually, of adjusted
capital. Thereafter, FS Advisor is entitled to receive 20.0% of pre-incentive fee net investment income.

Income Taxes:The Company has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC
under
Subchapter M of the Code. To maintain qualification as a RIC and maintain RIC tax treatment, the Company must, among other things, meet certain source-of-income and asset diversification
requirements, as well as distribute to its shareholders, in respect of each tax year, dividends of an amount generally at least equal to 90% of its "investment company taxable income," which is
generally the Company's net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regarding to any deduction
for dividends paid. As a RIC, the Company will not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes as dividends to its
shareholders. The Company intends to make distributions in an amount sufficient to qualify for and maintain its RIC tax treatment each tax year and to not pay any U.S. federal income taxes on income
so distributed. The Company will also be subject to nondeductible U.S. federal excise taxes if it does not timely distribute dividends each calendar year of an amount at least equal to the sum of 98%
of ordinary income (taking into account certain deferrals and elections) for the calendar year, 98.2% of any capital gain net income (adjusted for certain ordinary losses) for the one-year period
ending on October 31 of such calendar year, and any recognized and undistributed ordinary income from prior years for which it paid no income taxes. Certain of the Company's consolidated
subsidiaries are subject to U.S. federal and state income taxes. During the years ended December 31, 2017, 2016 and 2015, the Company accrued $0, $209 and $313, respectively, in estimated
income and excise taxes payable in respect of income received.

Uncertainty in Income Taxes:The Company evaluates its tax positions to determine if the tax positions taken meet the minimum
recognition threshold
in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in the consolidated
financial statements. Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is "more likely than not" to be sustained assuming
examination by taxing authorities. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the consolidated statements of operations.
During the years ended December 31, 2017, 2016 and 2015, the Company did not incur any interest or penalties.

The
Company has analyzed the tax positions taken on federal and state income tax returns for all open tax years, and has concluded that no provision for income tax is required in the
Company's financial statements. The Company's federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of revenue.

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 2. Summary of Significant Accounting Policies (Continued)

Distributions:Distributions to the Company's shareholders are recorded as of the record date. Subject to the discretion of the
Company's board of
trustees and applicable legal restrictions, the Company intends to authorize, declare and pay ordinary cash distributions on a monthly basis. Net realized capital gains, if any, are distributed or
deemed distributed at least annually.

Reclassifications:Certain amounts in the consolidated financial statements for the years ended December 31, 2016 and 2015 have
been
reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2017. These reclassifications had no material impact on the
Company's consolidated financial position, results of operations or cash flows as previously reported.

Note 3. Share Transactions

Below is a summary of transactions with respect to the Company's common shares during the years ended December 31, 2017, 2016 and 2015:



Year Ended December 31,2017

2016

2015Shares

Amount

Shares

Amount

Shares

AmountGross Proceeds from Offering




$



51,914,810

$
388,426


59,008,526

$
547,181Reinvestment of Distributions


25,383,052


186,471


25,722,629


180,011


18,641,269


152,401​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Gross Proceeds


25,383,052


186,471


77,637,439


568,437


77,649,795


699,582Commissions and Dealer Manager Fees











(33,699
)




(48,351
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds to Company


25,383,052


186,471


77,637,439


534,738


77,649,795


651,231Repurchases of Common Shares


(19,500,012
)

(143,659
)

(9,685,608
)

(67,307
)

(4,833,902
)

(40,009
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds from Share Transactions


5,883,040

$
42,812


67,951,831

$
467,431


72,815,893

$
611,222​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


Public Offering of Shares

In November 2016, the Company closed its continuous public offering of common shares to new investors. The Company sold 449,543,498 common
shares for gross proceeds of $4,362,119 in its continuous public offering, including shares issued pursuant to its distribution reinvestment plan during that period. Following the closing of its
continuous public offering, the Company has continued to issue shares pursuant to its distribution reinvestment plan. As of March 7, 2018, the Company had raised total gross proceeds of
$4,602,136.

During
the period from January 1, 2018 to March 7, 2018, the Company issued 3,128,865 common shares pursuant to its distribution reinvestment plan for gross proceeds of
$20,910 at an average price per share of $6.68.

Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company's board of trustees will consider
the following factors, among others, in making its determination regarding whether to cause the Company to offer to repurchase common shares and under what
terms:



105

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 3. Share Transactions (Continued)



Historically,
the Company limited the number of common shares to be repurchased during any calendar year to the lesser of (i) the number of common shares the Company can
repurchase with the proceeds it receives from the issuance of common shares under the Company's distribution reinvestment plan and (ii) 10% of the weighted average number of common shares
outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 5, 2017, the board of trustees of the Company further amended the share repurchase program. As amended, the
Company will limit the maximum number of common shares to be repurchased for any repurchase offer to the greater of (A) the number of common shares that the Company can repurchase with the
proceeds it has received from the sale of common shares under its distribution reinvestment plan during the twelve-month period ending on the date the applicable repurchase offer expires (less the
amount of proceeds used to repurchase common shares on each previous repurchase date for repurchase offers conducted during such twelve-month period) (this limitation is referred to as the
twelve-month repurchase limitation) and (B) the number of common shares that the Company can repurchase with the proceeds the Company receives from the sale of common shares under its
distribution reinvestment plan during the three-month period ending on the date the applicable repurchase offer expires (this limitation is referred to as the three-month repurchase limitation). In
addition to this limitation, the maximum number of common shares to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of common shares outstanding in
the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of common shares to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of
the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation
described in clause (A) above and the three-month repurchase limitation described in clause (B) above.

The
Company intends to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to the Company's distribution reinvestment plan on the
distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under the Company's distribution reinvestment plan is determined by the Company's
board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by the Company's board of
trustees or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per common share
as of such date. The Company's board of trustees may amend, suspend or terminate the share repurchase program at any time, upon 30 days' notice.

106

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 3. Share Transactions (Continued)

The
following table provides information concerning the Company's repurchases of common shares pursuant to its share repurchase program during the years ended December 31, 2017,
2016 and 2015:



For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Percentage of
Outstanding
Shares
Repurchased
as of the
Repurchase
Date

Repurchase
Price Per
Share(1)

Aggregate
Consideration
for Repurchased
SharesFiscal 2015December 31, 2014

January 7, 2015


450,293


100
%

0.15
%
$
8.820

$
3,972March 31, 2015

April 1, 2015


716,857


100
%

0.22
%
$
8.730


6,258June 30, 2015

July 1, 2015


955,664


100
%

0.28
%
$
8.820


8,429September 30, 2015

October 7, 2015


2,711,088


100
%

0.76
%
$
7.875


21,350​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total




4,833,902










$
40,009​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fiscal 2016December 31, 2015

January 6, 2016


2,716,924


100
%

0.73
%
$
6.750

$
18,339March 31, 2016

April 6, 2016


2,196,742


100
%

0.56
%
$
6.345


13,938June 30, 2016

July 6, 2016


1,788,021


100
%

0.43
%
$
7.200


12,874September 30, 2016

October 5, 2016


2,983,921


100
%

0.69
%
$
7.425


22,156​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total




9,685,608










$
67,307​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fiscal 2017December 31, 2016

January 3, 2017


2,239,480


100
%

0.51
%
$
7.700

$
17,244March 31, 2017

April 17, 2017


4,587,306


100
%

1.03
%
$
7.750


35,552June 30, 2017

July 3, 2017


4,990,805


100
%

1.12
%
$
7.200


35,934September 30, 2017

October 2, 2017


7,682,421


100
%

1.72
%
$
7.150


54,929​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total




19,500,012










$
143,659​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)On
October 13, 2016, and in connection with the closing of its continuous public offering, the Company amended the terms of its share repurchase program,
which was first effective for the Company's quarterly repurchase offer for the fourth quarter of 2016 to provide that shares repurchased under the program would be repurchased at a price determined as
described above. Prior to amending the share repurchase program, the Company offered to repurchase common shares at a price equal to 90% of the offering price in effect on the date of repurchase.


On
January 12, 2018, the Company repurchased 9,018,665 common shares (representing 64% of common shares tendered for repurchase and 2.02% of the shares outstanding as of such
date) at $6.70 per share for aggregate consideration totaling $60,425.

Note 4. Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of 2.0% of
the average value of the Company's gross assets (gross assets equals total assets as set forth on the Company's consolidated balance sheets) and an incentive fee based on the Company's performance.
The Company commenced accruing fees under the investment advisory and administrative services agreement on July 18, 2011, upon commencement of the Company's investment operations. Base
management fees are paid on a quarterly basis in arrears. Effective January 1, 2018, FS Advisor agreed to (a) permanently waive a portion of its base management fee to which it is
entitled under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of the Company's gross assets and (b) waive incentive
fees on income for a period of twelve months ending December 31, 2018. See

107

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 4. Related Party Transactions (Continued)

Note 2
for a discussion of the capital gains and subordinated income incentive fees that FS Advisor may be entitled to under the investment advisory and administrative services agreement.

Pursuant
to the sub-advisory agreement, GSO will receive 50% of all management and incentive fees payable to FS Advisor under the investment advisory and administrative services
agreement with respect to each year.

The
Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations, including FS Advisor's allocable portion of the
compensation and related expenses of certain personnel of FS Investments providing administrative services to the Company on behalf of FS Advisor. The amount of the reimbursement payable to FS Advisor
is the lesser of (1) FS Advisor's actual costs incurred in providing such services and (2) the amount that the Company estimates it would be required to pay alternative service providers
for comparable services in the same geographic location. FS Advisor is required to allocate the cost of such services to the Company based on factors such as assets, revenues, time allocations and/or
other reasonable metrics. The Company's board of trustees reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of the
administrative expenses among the Company and certain affiliates of FS Advisor. The Company's board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to the
Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party providers known to be available. In
addition, the Company's board of trustees considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the
Company's board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a percentage of the Company's net assets to the same ratio as reported by other
comparable BDCs. The Company will not reimburse FS Advisor for any services for which it receives a separate fee, or for rent, depreciation, utilities, capital equipment or other administrative
items allocated to a controlling person of FS Advisor.

Under
the investment advisory and administrative services agreement, the Company, either directly or through reimbursement to FS Advisor or its affiliates, was responsible for its
organization and offering costs in an amount up to 1.5% of gross proceeds raised in the Company's continuous public offering. Organization and offering costs primarily included legal, accounting,
printing and other expenses relating to the Company's continuous public offering, including costs associated with technology integration between the Company's systems and those of its selected
broker-dealers, marketing expenses, salaries and direct expenses of FS Advisor's personnel, employees of its affiliates and others while engaged in registering and marketing the Company's common
shares, which included the development of marketing materials and presentations, training and educational meetings, and generally coordinating the marketing process for the Company.

Prior
to satisfaction of the minimum offering requirement and for a period of time thereafter, FS Investments funded certain of the Company's organization and offering costs.
Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on the Company's behalf, including
marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. Organization
and offering costs funded directly by FS Investments were recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par value on the
consolidated financial statements and the organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts
reimbursed to FS Advisor for ongoing offering costs and any reimbursements paid to FS Investments for organization and offering costs previously funded, were recorded as a reduction of capital.
Commencing January 1, 2016, offering costs incurred by the Company are deferred and amortized as an expense over twelve months. Following the closing of the Company's continuous public offering
to new investors in November 2016, all deferred offering costs were expensed.

108

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 4. Related Party Transactions (Continued)

The dealer manager for the Company's continuous public offering was FS Investment Solutions, LLC (formerly FS2 Capital Partners, LLC), or FS Investment
Solutions, which is one of the Company's affiliates. Under the dealer manager agreement among the Company, FS Advisor and FS Investment Solutions, or the dealer manager agreement,
FS Investment Solutions was entitled to receive sales commissions and dealer manager fees in connection with the sale of common shares in the Company's continuous public offering, all or a
portion of which were re-allowed to selected broker-dealers and financial representatives. The dealer manager agreement terminated in connection with the closing of the Company's continuous public
offering in November 2016.

The
following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the years ended
December 31, 2017, 2016 and 2015:



Year Ended December 31,Related Party

Source Agreement

Description

2017

2016

2015FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
88,938

$
76,580

$
75,997FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(2)

$
10,499

$
5,774

$
31,016FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(3)

$
2,829

$
3,870

$
4,056FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(4)




$
3,548

$
4,238FS Advisor

Expense Support and Conditional Reimbursement Agreement

Expense Recoupment(5)

$
2,858





FS Investment Solutions

Dealer Manager Agreement

Dealer Manager Fee(6)




$
6,545

$
9,251


(1)During
the year ended December 31, 2017, $73,143 in base management fees were paid to FS Advisor and $14,816 in base management fees were applied to offset
the liability of FS Investments under the expense reimbursement agreement (see "Expense Reimbursement" below). During the years ended December 31, 2016 and 2015, $74,063 and
$75,571 in base management fees were paid to FS Advisor. As of December 31, 2017, $21,834 in base management fees were payable to FS Advisor, and it is intended that $5,945 of such fees will be
applied to offset the liability of FS Investments under the expense reimbursement agreement and the balance, $15,889, will be paid to FS Advisor.(2)During
the year ended December 31, 2017, $10,499 in subordinated incentive fees on income were applied to offset the liability of FS Investments under the
expense reimbursement agreement (see "Expense Reimbursement" below). See footnote (1) above for an additional offset to the liability of FS Investments under the expense
reimbursement agreement. During the years ended December 31, 2016 and 2015, $17,822 and $31,110, respectively, of subordinated incentive fees on income were paid to FS Advisor. As of
December 31, 2017, the Company did not have any subordinated incentive fee on income payable to FS Advisor.(3)During
the years ended December 31, 2017, 2016 and 2015, $2,638, $3,704 and $3,784, respectively, of the accrued administrative services expenses related to
the allocation of costs of administrative personnel for services rendered to the Company by FS Advisor and the remainder related to other reimbursable expenses. The Company paid $3,945, $4,265 and
$3,837, respectively, in administrative services expenses to FS Advisor during the years ended December 31, 2017, 2016 and 2015.(4)During
the years ended December 31, 2016 and 2015, the Company incurred offering costs of $4,675 and $8,950, respectively, of which $3,548 and $4,238,
respectively, related to reimbursements to FS Advisor for offering costs incurred on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel
and employees of its affiliates while engaged in registering and marketing the Company's common shares.(5)During
the year ended December 31, 2017, the Company accrued $2,858 for expense recoupments payable to FS Advisor under the expense reimbursement agreement
(see "Expense Reimbursement" below). During the year ended December 31, 2017, $2,858 of expense recoupments were paid to FS Advisor. As of December 31, 2017, the Company did
not have any expense recoupments payable to FS Advisor.(6)Represents
aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers or financial representatives.


109

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 4. Related Party Transactions (Continued)

Potential Conflicts of Interest

FS Advisor's senior management team is comprised of substantially the same personnel as the senior management teams of the investment advisers
to the Fund Complex. As a result, such personnel provide investment advisory services to certain other funds or products in the Fund Complex and such personnel may serve in similar or other capacities
for the investment advisers to future investment vehicles in the Fund Complex. While none of the investment advisers are currently providing investment advisory services to clients other than the
funds in the Fund Complex, any, or all, may do so in the future. In the event that FS Advisor or its management team undertakes to provide investment advisory services to other clients in the future,
it intends to allocate investment opportunities in a fair and equitable manner consistent with the Company's investment objectives and strategies, if necessary, so that the Company will not be
disadvantaged in relation to any other client of FS Advisor or its management team.

Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to
co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may,
simultaneously co-invest in transactions where price is the only negotiated term. In an order dated June 4, 2013, or the Order, the SEC granted exemptive relief permitting the Company, subject
to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of FS Advisor, including FS Investment Corporation, FS
Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV, the "FSIC Franchise" and any future BDCs that are advised by FS Advisor or its affiliated investment advisers,
or collectively the Company's co-investment affiliates. However, in connection with the potential transition of advisory services from a sub-advisory relationship with GSO
to a joint advisory relationship with EIG, and in an effort to mitigate potential future conflicts of interest, the Company's board of trustees has authorized and directed that the Company exercise
its rights under the Order to decline to participate in any new potential co-investment transaction pursuant to the Order that would be within the then-current investment objectives and strategies of
the FSIC Franchise unless sourced by GSO, EIG or the FS/EIG Advisor. The Company may still rely on the Order to participate in certain transactions with the Company's co-investment affiliates with
respect to co-investments previously made under the Order. The Company believes this relief has and may continue to enhance its ability to further its investment objectives and strategy. Because the
Company did not seek exemptive relief to engage in co-investment transactions with GSO and its affiliates, the Company will continue to be permitted to co-invest with GSO and its affiliates only in
accordance with existing regulatory guidance (e.g., where price is the only negotiated term).

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or the expense
reimbursement agreement, FS Investments has agreed to reimburse the Company for expenses in an amount that is sufficient to ensure that no portion of the Company's distributions to shareholders will
be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including preferred and common equity investments, may generate dividends and other
distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company's distributions to shareholders may also be deemed to constitute a return of capital for
tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its distributions to shareholders. Under those circumstances, FS Investments will not
reimburse the Company for the portion of such distributions to shareholders that

110

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 4. Related Party Transactions (Continued)

represent
a return of capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.

Under
the expense reimbursement agreement, FS Investments will reimburse the Company quarterly for expenses in an amount equal to the difference between the Company's cumulative
distributions paid to its shareholders in each quarter, less the sum of the Company's net investment company taxable income, net capital gains and dividends and other distributions paid to the Company
on account of preferred and common equity investments in portfolio companies (to the extent such amounts are not included in net investment company taxable income or net capital gains) in each
quarter.

Pursuant
to the expense reimbursement agreement, the Company has a conditional obligation to reimburse FS Investments for any amounts funded by FS Investments under such agreement if
(and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments funded such amount, the sum of the Company's net investment company taxable
income, net capital gains and the amount of any dividends and other distributions paid to the Company on
account of preferred and common equity investments in portfolio companies (to the extent not included in net investment company taxable income or net capital gains) exceeds the distributions paid by
the Company to its shareholders; provided, however, that (i) the Company will only reimburse FS Investments for expense support payments made by FS Investments with respect to any calendar
quarter beginning on or after July 1, 2013 to the extent that the payment of such reimbursement (together with any other reimbursement paid during such fiscal year) does not cause "other
operating expenses" (as defined below) (on an annualized basis and net of any expense support payments received by the Company during such fiscal year) to exceed the lesser of (A) 1.75% of the
Company's average net assets attributable to its common shares for the fiscal year-to-date period after taking such payments into account and (B) the percentage of the Company's average net
assets attributable to its common shares represented by "other operating expenses" during the fiscal year in which such expense support payment from FS Investments was made (provided, however, that
this clause (B) shall not apply to any reimbursement payment which relates to an expense support payment from FS Investments made during the same fiscal year) and (ii) the Company will
not reimburse FS Investments for expense support payments made by FS Investments if the aggregate amount of distributions per share declared by the Company in such calendar quarter is less than the
aggregate amount of distributions per share declared by the Company in the calendar quarter in which FS Investments made the expense support payment to which such reimbursement relates. The Company is
not obligated to pay interest on the payments it receives from FS Investments. "Other operating expenses" means the Company's total "operating expenses" (as defined below), excluding base management
fees, incentive fees, organization and offering expenses, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses. "Operating expenses" means all operating costs
and expenses incurred, as determined in accordance with GAAP for investment companies.

The
Company or FS Investments may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at
the end of each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of
termination. Similarly, the Company's conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by
either party.

During
the year ended December 31, 2017, the Company accrued $31,260 for expense reimbursements that FS Investments has agreed to pay, including $5,945 in expense reimbursements
accrued for the three months ended December 31, 2017. As discussed in the footnotes to the table above, the Company offset $14,816 in management fees payable and $10,499 in subordinated income

111

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 4. Related Party Transactions (Continued)

incentive
fees payable by the Company to FS Advisor during the year ended December 31, 2017. As of December 31, 2017, the Company had $5,945 of reimbursements due from FS Investments,
which the Company expects to offset against management fees payable by the Company to FS Advisor. As of December 31, 2016, there were no reimbursements payable to the Company from FS
Investments.

As
discussed above, under the expense reimbursement agreement, amounts reimbursed to the Company by FS Investments may become subject to repayment by the Company in the future. During
the year ended December 31, 2017, the Company paid $2,858 in expense recoupments to FS Investments. As of December 31, 2017, $28,104 of reimbursements may become subject to repayment by
the Company to FS Investments in the future.

The
following table reflects the expense reimbursement payments due from FS Investments to the Company as of December 31, 2017 that may become subject to repayment by the Company
to FS Investments:



For the Three Months Ended

Amount of
Expense
Reimbursement
Payment

Annualized
"Other
Operating
Expenses"
Ratio as of the
Date of Expense
Reimbursement

Annualized Rate
of Distributions
Per Share(1)

Reimbursement
Eligibility
ExpirationMarch 31, 2017

$
15,362
(2)

0.40
%

9.14
%
March 31, 2020June 30, 2017





N/A


N/A

N/ASeptember 30, 2017


7,095


0.36
%

9.91
%
September 30, 2020December 31, 2017


5,647


0.36
%

10.57
%
December 31, 2020​
​
​
​
​
​
​
​
​
​
​
​Total

$
28,104​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​


(1)The
annualized rate of distributions per share is expressed as a percentage equal to the projected annualized distribution amount as of the end of the applicable
period (which is calculated by annualizing the regular monthly cash distribution per share as of such date without compounding), divided by the Company's distribution reinvestment price per share as
of such date.(2)Amount
has been reduced by the $2,858 paid during the year ended December 31, 2017 for expense recoupments payable to FS Investments.


FS
Investments is controlled by the Company's chairman, president and chief executive officer, Michael C. Forman, and the Company's vice-chairman, David J. Adelman. There can be no
assurance that the expense reimbursement agreement will remain in effect or that FS Investments will reimburse any portion of the Company's expenses in future quarters.

FS Benefit Trust

On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive compensation to
employees of FS Investments and its affiliates. During the years ended 2016 and 2015, FS Benefit Trust purchased $142 and $104, respectively, of the Company's common shares at a purchase price equal
to 90% of the offering price in effect on the applicable purchase date.

112

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 5. Distributions

The following table reflects the cash distributions per share that the Company has declared and paid on its common shares during the years ended December 31, 2017, 2016 and 2015:



DistributionFor the Year Ended December 31,

Per Share

Amount2015

$
0.7085

$
238,8332016

$
0.7085

$
288,9822017

$
0.7085

$
312,694


Subject
to applicable legal restrictions and the sole discretion of the Company's board of trustees, the Company intends to authorize, declare and pay regular cash distributions on a
monthly basis. On January 2, 2018 and March 6, 2018, the Company's board of trustees declared regular monthly cash distributions for January 2018 through March 2018 and April 2018
through June 2018, respectively, each in the amount of $0.041667 per share. These distributions have been or will be paid monthly to shareholders of record as of monthly record dates previously
determined by the Company's board of trustees. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company's
board of trustees.

The
Company has adopted an "opt in" distribution reinvestment plan for its shareholders. As a result, if the Company makes a cash distribution, its shareholders will receive
distributions in cash unless they specifically "opt in" to the distribution reinvestment plan so as to have their cash distributions reinvested in additional common shares. However, certain state
authorities or regulators may impose restrictions from time to time that may prevent or limit a shareholder's ability to participate in the distribution reinvestment plan.

On
October 13, 2016, the Company further amended and restated its distribution reinvestment plan, or the amended distribution reinvestment plan, which first applied to the
reinvestment of cash distributions paid on or after November 30, 2016. Under the original plan, cash distributions to participating shareholders were reinvested in additional common shares at a
purchase price equal to 90% of the public offering price per share in effect as of the date of issuance. Under the amended plan, cash distributions to participating shareholders will be reinvested in
additional common shares at a purchase price determined by the Company's board of trustees, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per
common share as determined in good faith by the Company's board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not
more than 2.5% greater than the net asset value per common share as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. shareholder.

The
Company may fund its cash distributions to shareholders from any sources of funds legally available to it, including proceeds from the sale of the Company's common shares,
borrowings, net investment income from operations, capital gains proceeds from the sale of assets, non-capital gains
proceeds from the sale of assets, dividends or other distributions paid to the Company on account of preferred and common equity investments in portfolio companies and expense reimbursements from FS
Investments. The Company has not established limits on the amount of funds it may use from available sources to make distributions.

For
the year ended December 31, 2017, portions of the Company's distributions were funded through the reimbursement of expenses by FS Investments and its affiliates, including
through the offset of certain investment advisory fees by FS Advisor, that are, if certain conditions are met, subject to repayment by the Company within three years. Any such distributions funded
through expense reimbursements or the offset of advisory fees are not based on the Company's investment performance, and can only be sustained if the Company achieves positive investment performance
in future periods

113

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 5. Distributions (Continued)

and/or
FS Investments and its affiliates continues to make such reimbursements or offset such fees. The Company's future repayments of amounts reimbursed or offset by FS Investments or its affiliates
will reduce the distributions that shareholders would otherwise receive in the future. There can be no assurance that the Company will continue to achieve the performance necessary to sustain its
distributions or that the Company will be able to pay distributions at a specific rate or at all. FS Investments and its affiliates have no obligation to offset or waive advisory fees or otherwise
reimburse expenses in future periods. If FS Investments had not reimbursed certain of the Company's expenses, 9% of the aggregate amount of distributions paid during the year ended December 31,
2017 would have been funded from offering proceeds or borrowings.

The
following table reflects the sources of the cash distributions on a tax basis that the Company paid on its common shares during the years ended December 31, 2017, 2016 and
2015:



Year Ended December 31,2017

2016

2015Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$





$



Borrowings

















Net investment income (prior to expense reimbursement)(1)


282,701


90
%

273,529


95
%

224,586


94
%Short-term capital gains proceeds from the sale of assets

















Long-term capital gains proceeds from the sale of assets














14,247


6
%Non-capital gains proceeds from the sale of assets

















Distributions on account of investments in portfolio companies


1,591


1
%

15,453


5
%




Expense reimbursement from sponsor


28,402


9
%










​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
312,694


100
%
$
288,982


100
%
$
238,833


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)During
the years ended December 31, 2017, 2016 and 2015, 80.8%, 79.8% and 87.2%, respectively, of the Company's gross investment income on a tax basis was
attributable to cash income earned, 0.5%, 3.9% and 2.6%, respectively, was attributable to non-cash income earned. In addition, 14.2%, 13.3% and 8.1%, respectively, was attributed to paid-in-kind, or
PIK, interest and 4.4%, 3.0% and 2.1%, respectively, was attributed to accretion of discount during the years ended December 31, 2017, 2016 and 2015.


The
Company's net investment income on a tax basis for the years ended December 31, 2017, 2016 and 2015 was $311,103, $262,430 and $234,163, respectively. As of
December 31, 2017 and 2016, the Company had $0 and $242, respectively, of undistributed ordinary income on a tax basis and distributions received from investments in portfolio companies.

During
the year ended December 31, 2017, certain investments in the portfolio were restructured or experienced defaults. The Company may experience additional restructurings or
defaults in the future. These restructurings and defaults may have an impact on the level of income received by the Company.

The
difference between the Company's GAAP-basis net investment income and its tax-basis net investment income was primarily due to the reclassification of unamortized original issue
discount,

114

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 5. Distributions (Continued)

certain
amendment fees and prepayment fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the impact of certain subsidiaries that are
consolidated for purposes of computing GAAP-basis net investment income but are not consolidated for purposes of computing tax-basis net investment income and income recognized for tax purposes on
certain transactions but not recognized for GAAP purposes.

The
following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2017, 2016 and
2015:



Year Ended December 31,2017

2016

2015GAAP-basis net investment income

$
286,574

$
231,647

$
227,595Reclassification of unamortized original issue discount, amendment fees and prepayment fees


(22,840
)

(5,791
)

(10,185
)GAAP vs. tax-basis consolidation of certain subsidiaries


29,972


18,088


9,252Income subject to tax not recorded for GAAP


17,419


13,834


9,396Other miscellaneous differences


(22
)

4,652


(1,895
)​
​
​
​
​
​
​
​
​
​
​Tax-basis net investment income

$
311,103

$
262,430

$
234,163​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


The
Company may make certain adjustments to the classification of shareholders' equity as a result of permanent book-to-tax differences. During the year ended December 31, 2017,
the Company increased accumulated undistributed (distributions in excess of) net investment income by $38,020, decreased accumulated net realized gains (losses) on investments and gain/loss on foreign
currency by $8,845, and reduced capital in excess of par value by $29,175. During the year ended December 31, 2016, the Company increased accumulated undistributed (distributions in excess of)
net investment income and accumulated net realized gains (losses) on investments and gain/loss on foreign currency by $14,120 and $64,199, respectively, and reduced capital in excess of par value by
$78,319.

The
determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon the Company's taxable income for the full
year and distributions paid for the full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV.

As
of December 31, 2017 and 2016, the components of accumulated earnings on a tax basis were as follows:



December 31,2017

2016Distributable ordinary income, net of distributions received from investments in portfolio companies

$


$
242Accumulated capital losses(1)


(430,039
)

(367,653
)Other temporary differences


(198
)

79Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency(2)


(498,322
)

(115,266
)​
​
​
​
​
​
​
​Total

$
(928,559
)
$
(482,598
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)Net
capital losses may be carried forward indefinitely, and their character is retained as short-term or long-term. As of December 31, 2017, the Company had
short-term and long-term capital loss carryforwards available to offset future realized capital gains of $18,690 and $411,349, respectively.


115

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 5. Distributions (Continued)

(2)As
of December 31, 2017 and 2016, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign currency was $104,844 and
$224,411, respectively, and the gross unrealized depreciation on the Company's investments and unrealized loss on foreign currency was $603,166 and $339,677, respectively.


The
aggregate cost of the Company's investments for federal income tax purposes totaled $4,557,977 and $4,014,678 as of December 31, 2017 and 2016, respectively. The aggregate net
unrealized appreciation (depreciation) on a tax basis was $(498,322) and $(115,266) as of December 31, 2017 and 2016, respectively.

As
of December 31, 2017 and 2016, the Company had deferred tax liabilities of $0 and $46,278, respectively, resulting from unrealized appreciation on investments held by the
Company's wholly-owned taxable subsidiaries and deferred tax assets of $73,103 and $81,116, respectively, resulting from net operating and capital losses of the Company's wholly-owned taxable
subsidiaries. As of December 31, 2017 and 2016, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their generated net operating and capital
losses, therefore the deferred tax assets were offset by valuation allowances of $73,103 and $34,838, respectively. For the years ended December 31, 2017 and 2016, the Company did not record a
provision for taxes related to its wholly-owned taxable subsidiaries.

Note 6. Investment Portfolio

The following table summarizes the composition of the Company's investment portfolio at cost and fair value as of December 31, 2017 and 2016:



December 31, 2017

December 31, 2016Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
961,883

$
924,926


23
%
$
947,803

$
912,491


23
%Senior Secured LoansSecond Lien


860,470


796,524


20
%

948,762


873,869


22
%Senior Secured Bonds


664,542


660,151


17
%

388,512


397,614


10
%Subordinated Debt


1,229,790


1,203,524


30
%

1,049,097


1,043,167


27
%Equity/Other


641,081


411,580


10
%

628,814


683,299


18
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​$
4,357,766

$
3,996,705


100
%
$
3,962,988

$
3,910,440


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Amortized
cost represents the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments.


In
general, under the 1940 Act, the Company would be presumed to "control" a portfolio company if it owned more than 25% of its voting securities or it had the power to exercise control
over the management or policies of a portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.

As
of December 31, 2017, the Company held investments in one portfolio company of which it is deemed to "control." As of December 31, 2017, the Company held investments in
six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes (aa) and
(bb) to the consolidated schedule of investments as of December 31, 2017.

116

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 6. Investment Portfolio (Continued)

As of December 31, 2016, the Company held investments in one portfolio company of which it is deemed to "control." As of December 31, 2016, the Company held investments in
six portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to "control." For additional information with respect to such portfolio companies, see footnotes
(p) and (aa) to the consolidated schedule of investments as of December 31, 2016.

The
Company's investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, pursuant to which the Company
may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of December 31, 2017, the Company had four senior secured
loan investments with aggregate unfunded commitments of $90,662 and two equity/other investments with aggregate unfunded commitments of $8,751. As of December 31, 2017, these unfunded
equity/other investments were Altus Power America Holdings, LLC, preferred equity and Chisholm Oil and Gas, LLC. As of December 31, 2016, the Company had four senior secured loan
investments with aggregate unfunded commitments of $82,404, and four equity/other investments with aggregate unfunded commitments of $14,942. As of December 31, 2016, these unfunded
equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy
Offshore LLC. The Company maintains sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

The
table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of December 31,
2017 and 2016:



December 31, 2017

December 31, 2016Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,539,867


64
%
$
2,270,769


58
%Midstream


441,189


11
%

343,713


9
%Downstream


47,831


1
%

49,623


1
%Power


231,495


6
%

523,153


13
%Service & Equipment


736,323


18
%

723,182


19
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,996,705


100
%
$
3,910,440


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


Note 7. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction
to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes valuation techniques that maximize the use of observable market inputs and
minimize the use of
unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or
unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent
of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the
circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

Level 1:Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities.

117

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 7. Fair Value of Financial Instruments (Continued)

Level 2:Inputs that are quoted prices for similar assets or liabilities in active markets.

Level 3:Inputs that are unobservable for an asset or liability.

A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As
of December 31, 2017 and 2016, the Company's investments were categorized as follows in the fair value hierarchy:



Valuation Inputs

December 31, 2017

December 31, 2016Level 1Price quotations in active markets

$
38,445

$
46,728Level 2Significant other observable inputs





Level 3Significant unobservable inputs


3,958,260


3,863,712​
​
​
​
​
​
​
​Total

$
3,996,705

$
3,910,440​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


The
Company's investments consist primarily of debt investments that are either acquired directly from the issuer or traded on an over-the-counter market for institutional investors.
Debt investments, for which broker quotes are not generally available, are valued by independent valuation firms, which determine the fair value of such investments by considering, among other
factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Except as
described below, all of the Company's equity/other investments are also valued by independent valuation firms, which determine the fair value of such investments by considering, among other factors,
contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes, depreciation and amortization, or EBITDA, cash flows, net income,
revenues or, in limited instances, book value or liquidation value. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements.
An investment that is newly issued and purchased near the date of the financial statements is valued at cost if the Company's board of trustees determines that the cost of such investment is the best
indication of its fair value. Except as described
above, the Company values its other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which are provided by an independent
third-party pricing service and screened for validity by such service.

The
Company periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers, as applicable, against the actual prices at which the Company
purchases and sells its investments. Based on the results of the benchmark analysis and the experience of the Company's management in purchasing and selling these investments, the Company believes
that these prices are reliable indicators of fair value. However, because of the private nature of this marketplace (meaning actual transactions are not publicly reported), the Company believes that
these valuation inputs are classified as Level 3 within the fair value hierarchy. The Company may also use other methods, including the use of independent valuation firms, to determine fair
value for securities for which it cannot obtain prevailing bid and ask prices through third-party pricing services or independent dealers or where the Company's board of trustees otherwise determines
that the use of such other method is appropriate. The Company periodically benchmarks the valuations provided by the independent valuation firms against the actual prices at which it purchases and
sells its investments. The valuation committee of the board of trustees, or the valuation committee, and the board of trustees reviewed and approved the valuation determinations made with respect to
these investments in a manner consistent with the Company's valuation policy.

118

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 7. Fair Value of Financial Instruments (Continued)

The
following is a reconciliation for the years ended December 31, 2017 and 2016 of investments for which significant unobservable inputs (Level 3) were used in determining
fair value:



For the Year Ended December 31, 2017Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
912,491

$
873,869

$
397,614

$
1,043,167

$
636,571

$
3,863,712Accretion of discount (amortization of premium)


4,400


7,294


2,191


9,025





22,910Net realized gain (loss)


(7,205
)

(65,483
)

801


(4,238
)

(14,958
)

(91,083
)Net change in unrealized appreciation (depreciation)


(1,645
)

10,947


(13,493
)

(20,336
)

(264,348
)

(288,875
)Purchases


397,162


428,871


347,091


621,372


55,767


1,850,263Paid-in-kind interest


12,854


14,222


859


1,295


3,751


32,981Sales and repayments


(393,131
)

(473,196
)

(74,912
)

(446,761
)

(43,648
)

(1,431,648
)Net transfers in or out of Level 3

















​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fair value at end of period

$
924,926

$
796,524

$
660,151

$
1,203,524

$
373,135

$
3,958,260​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to
investments still held at the reporting date

$
1,089

$
7,011

$
(12,818
)
$
(5,215
)
$
(90,476
)
$
(100,409
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​






For the Year Ended December 31, 2016Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
929,790

$
923,402

$
323,948

$
579,740

$
312,618

$
3,069,498Accretion of discount (amortization of premium)


4,048


3,036


1,440


6,105


1,356


15,985Net realized gain (loss)


(57,093
)

(71,615
)

(39,217
)

(94,508
)

11,002


(251,431
)Net change in unrealized appreciation (depreciation)


89,968


215,421


130,629


275,202


54,404


765,624Purchases


307,960


203,980


147,795


410,587


377,866


1,448,188Paid-in-kind interest


13,579


10,486


468


1,062


15,305


40,900Sales and repayments


(375,761
)

(410,841
)

(167,449
)

(135,021
)

(135,980
)

(1,225,052
)Net transfers in or out of Level 3

















​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Fair value at end of period

$
912,491

$
873,869

$
397,614

$
1,043,167

$
636,571

$
3,863,712​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to
investments still held at the reporting date

$
37,758

$
76,863

$
60,527

$
145,201

$
97,503

$
417,852​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


119

---



Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 7. Fair Value of Financial Instruments (Continued)

The
valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of December 31, 2017 and 2016 were as follows:



Type of Investment

Fair Value at
December 31, 2017

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured LoansFirst Lien

$
560,200

Market Comparables

Market Yield (%)

8.0% - 13.0%

10.4%EBITDA Multiples (x)

5.3x - 8.0x

6.4xProved Reserves Multiples (Mmboe)

$5.8 - $6.3

$6.0PV-10 Multiples (x)

0.4x - 0.5x

0.4x273,133

Market Quotes

Indicative Dealer Quotes

71.3% - 102.0%

98.4%91,593

Other(2)

Other(2)

N/A

N/ASenior Secured LoansSecond Lien


588,486

Market Comparables

Market Yield (%)

8.5% - 20.7%

11.9%EBITDA Multiples (x)

6.0x - 6.5x

6.3x14,850

Cost

Cost

100.0% - 100.0%

100.0%193,188

Market Quotes

Indicative Dealer Quotes

31.0% - 101.3%

92.6%Senior Secured Bonds


488,721

Market Comparables

Market Yield (%)

7.7% - 12.3%

8.9%Production Multiples (Mboe/d)

$42,250.0 - $44,750.0

$43,500.0Proved Reserves Multiples (Mmboe)

$10.3 - $11.3

$10.8PV-10 Multiples (x)

0.8x - 0.8x

0.8xEBITDA Multiples (x)

4.8x - 5.3x

5.0x171,430

Market Quotes

Indicative Dealer Quotes

73.0% - 107.8%

89.1%Subordinated Debt


110,255

Market Comparables

Market Yield (%)

11.0% - 14.8%

11.4%PV-10 Multiples (x)

1.2x - 1.2x

1.2x1,093,269

Market Quotes

Indicative Dealer Quotes

50.0% - 120.2%

100.7%Equity/Other


329,226

Market Comparables

EBITDA Multiples (x)

5.5x - 23.5x

8.1xProduction Multiples (Mboe/d)

$32,500.0 - $51,250.0

$37,007.0Proved Reserves Multiples (Mmboe)

$8.3 - $11.3

$9.1Production Multiples (MMcfe/d)

$5,000.0 - $5,500.0

$5,250.0Proved Reserves Multiples (Bcfe)

$1.8 - $2.0

$1.9PV-10 Multiples (x)

0.8x - 2.6x

1.9xCapacity Multiple ($/kW)

$2,000.0 - $2,250.0

$2,125.0Market Yield (%)

15.3% - 15.8%

15.5%1,692

Discounted Cash Flow

Discount Rate (%)

11.0% - 30.5%

12.2%103

Option Valuation Model

Volatility (%)

30.0% - 30.0%

30.0%19,820

Other(2)

Other(2)

N/A

N/A22,294

Market Quotes

Indicative Dealer Quotes

$1.5 - $372.5

$81.7​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,958,260​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​


120

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 7. Fair Value of Financial Instruments (Continued)





Type of Investment

Fair Value at
December 31, 2016

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured LoansFirst Lien

$
581,550

Market Comparables

Market Yield (%)

8.0% - 17.8%

11.5%1,024

Other(2)

Other(2)

N/A

N/A329,917

Market Quotes

Indicative Dealer Quotes

72.0% - 102.0%

93.7%Senior Secured LoansSecond Lien


530,636

Market Comparables

Market Yield (%)

8.8% - 22.9%

12.7%343,233

Market Quotes

Indicative Dealer Quotes

12.0% - 105.4%

89.6%Senior Secured Bonds


326,388

Market Comparables

Market Yield (%)

7.5% - 9.0%

8.0%Production Multiples (Mboe/d)

$45,000.0 - $50,000.0

$47,500.0Proved Reserves Multiples (Mmboe)

$14.5 - $15.0

$14.8EBITDA Multiples (x)

6.8x - 7.3x

7.0xPV-10 Multiples (x)

0.8x - 0.9x

0.9x71,226

Market Quotes

Indicative Dealer Quotes

84.2% - 109.3%

96.6%Subordinated Debt


122,821

Market Comparables

Market Yield (%)

7.5% - 15.3%

11.2%920,346

Market Quotes

Indicative Dealer Quotes

54.5% - 125.5%

97.7%Equity/Other


594,404

Market Comparables

EBITDA Multiples (x)

4.5x - 16.3x

9.4xProduction Multiples (Mmb/d)

$2,225.0 - $55,000.0

$41,329.5Proved Reserves Multiples (Mmboe)

$0.7 - $15.0

$8.9PV-10 Multiples (x)

0.3x - 2.1x

0.7xCapacity Multiple ($/kW)

$2,375.0 - $2,875.0

$2,625.0Undeveloped Acreage Multiple ($/acre)

$8,000.0 - $10,000.0

$9,000.0Market Yield (%)

10.0% - 14.3%

12.2%Discounted Cash Flow

Discount Rate (%)

9.3% - 24.8%

23.7%3,339

Other(2)

Other(2)

N/A

N/A38,828

Market Quotes

Indicative Dealer Quotes

$7.0 - $16.0

$10.7​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,863,712​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​


(1)Investments
using a market quotes valuation technique were valued by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant
period end, which were provided by an independent third-party pricing service and screened for validity by such service. For investments utilizing a market comparables valuation technique, a
significant increase (decrease) in the market yield, in isolation, would result in a significantly lower (higher) fair value measurement, and a significant increase (decrease) in any of the valuation
multiples, in isolation, would result in a significantly higher (lower) fair value measurement. For investments utilizing a discounted cash flow valuation technique, a significant increase (decrease)
in the discount rate, in isolation, would result in a significantly lower (higher) fair value measurement. For investments utilizing an option valuation model valuation technique, a significant
increase (decrease) in the volatility, in isolation, would result in a significantly higher (lower) fair value measurement.(2)Fair
valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other factors.


Note 8. Financing Arrangements

The following tables present a summary of information with respect to the Company's outstanding financing arrangements as of December 31, 2017 and 2016:



As of December 31, 2017Facility(1)

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Credit Facility

Revolving

L+3.25%

$


$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.35%


300,000




September 27, 2018(2)Deutsche Bank Credit Facility

Revolving

L+2.05%


340,000




June 11, 2018Fortress Facility

Term

L+5.00%(3)


155,000




November 6, 2020Goldman Facility

Term

L+3.72%


425,000




September 15, 2019​
​
​
​
​
​
​
​
​
​
​
​
​Total





$
1,220,000

$
100,000​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


121

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)



As of December 31, 2016Facility(1)

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Credit Facility

Revolving

L+3.25%

$


$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.10%


113,737


186,263

September 27, 2017(2)Deutsche Bank Credit Facility

Revolving

L+2.05%


200,000


115,000

June 11, 2017Fortress Facility

Term

L+5.00%(3)


155,000




November 6, 2020Goldman Repurchase Financing

Repurchase

L+3.38%


325,000




September 15, 2018Natixis Credit Facility

Revolving

CP+2.25%


50,328




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%


29,600


30,400

September 9, 2018​
​
​
​
​
​
​
​
​
​
​
​
​Total





$
873,665

$
431,663​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


(1)The
carrying amount outstanding under the facility approximates its fair value.(2)As
described below, this facility generally is terminable upon 270 days' notice by either party. As of December 31, 2017 and 2016, neither party had
provided notice of its intent to terminate the facility.(3)As
described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.


For
the years ended December 31, 2017, 2016 and 2015 the components of total interest expense for the Company's financing arrangements were as follows:



Arrangement(1)

Barclays
Credit
Facility

BNP
Facility

Citibank
Credit
Facility

Deutsche
Bank
Credit
Facility

Fortress
Facility

Goldman
Facility

Goldman
Repurchase
Financing

Natixis
Credit
Facility

Wells
Fargo
Credit
Facility

Total2017Interest expense(2)

$
460

$
6,696




$
9,111

$
9,494

$
14,251

$
4,305

$
750

$
530

$
45,597Amortization of deferred financing costs


58








1,153


273


412


91


342


1,360


3,689​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
518

$
6,696




$
10,264

$
9,767

$
14,663

$
4,396

$
1,092

$
1,890

$
49,286​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​2016Interest expense(2)

$
238

$
3,173




$
6,609

$
6,503




$
11,927

$
2,217

$
3,252

$
33,919Amortization of deferred financing costs


29








1,145


270





129


1,044


590


3,207​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
267

$
3,173




$
7,754

$
6,773




$
12,056

$
3,261

$
3,842

$
37,126​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​2015Interest expense(2)




$
3,490

$
471

$
6,407

$
647




$
9,448

$
3,041

$
4,492

$
27,996Amortization of deferred financing costs





76


130


1,036


27





128


782


528


2,707​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense




$
3,566

$
601

$
7,443

$
674




$
9,576

$
3,823

$
5,020

$
30,703​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


(1)Borrowings
of each of the Company's wholly-owned special-purpose financing subsidiaries are considered borrowings of the Company for purposes of complying with the
asset coverage requirements applicable to BDCs under the 1940 Act.(2)Interest
expense includes the effect of non-usage fees, administration fees and make-whole fees, if any.


122

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)

For
the years ended December 31, 2017, 2016 and 2015 the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Company's financing arrangements were as follows:



Arrangement

Barclays
Credit
Facility(2)

BNP
Facility(3)

Citibank
Credit
Facility

Deutsche
Bank
Credit
Facility(4)

Fortress
Facility(4)

Goldman
Facility(4)

Goldman
Repurchase
Financing(4)

Natixis
Credit
Facility(4)

Wells
Fargo
Credit
Facility(4)

Total/
Average2017Cash paid for interest expense

$
462

$
6,192




$
8,390

$
9,102

$
13,240

$
4,954

$
943

$
609

$
43,892Average borrowings(5)

$
1,945

$
225,507




$
257,753

$
155,000

$
283,356

$
96,164

$
21,294

$
14,120

$
1,055,139Effective interest rate(1)





3.04
%




3.39
%

6.25
%

5.04
%










4.24
%Weighted average interest rate(1)


5.71
%

2.97
%




3.53
%

6.13
%

5.03
%

4.48
%

3.52
%

3.75
%

4.32
%2016Cash paid for interest expense

$
173

$
3,169




$
6,591

$
5,093




$
11,752

$
2,309

$
3,550

$
32,637Average borrowings




$
113,737




$
216,612

$
100,679




$
324,989

$
71,692

$
91,283

$
918,992Effective interest rate(1)





2.10
%




2.89
%

5.77
%




4.23
%

3.38
%

3.58
%

3.85
%Weighted average interest rate(1)





2.79
%




3.05
%

6.46
%




3.67
%

3.09
%

3.56
%

3.69
%2015Cash paid for interest expense




$
3,528

$
1,011

$
6,316







$
9,419

$
3,195

$
4,369

$
27,838Average borrowings




$
209,117

$
70,020

$
280,000

$
56,714




$
251,427

$
116,357

$
129,575

$
1,113,210Effective interest rate(1)





1.71
%




2.30
%

5.75
%




3.09
%

2.77
%

3.23
%

2.95
%Weighted average interest rate(1)





1.67
%

2.99
%

2.29
%

7.33
%




3.76
%

2.61
%

3.47
%

2.77
%


(1)Effective
interest rate and weighted average interest rate include the effect of non-usage fees, administration fees and make-whole fees, if any. If applicable, the
weighted average interest rate presented for periods of less than one year is annualized(2)Interest
is paid quarterly in arrears and commenced on February 6, 2017.(3)Interest
paid monthly in arrears.(4)Interest
paid quarterly in arrears.(5)The
average borrowings calculated for the period in which amounts were outstanding during the year ended December 31, 2017 were $23,667, $402,432, $325,000,
$36,489 and $24,897 under the the Barclays credit facility, Goldman facility, Goldman repurchase financing, Natixis credit facility and Wells Fargo credit facility, respectively.


Barclays Credit Facility

On May 18, 2016, Bryn Mawr Funding LLC, or Bryn Mawr Funding, a wholly-owned subsidiary, entered into a revolving credit facility,
or the Barclays credit facility, with Barclays Bank PLC, or Barclays, as administrative agent, and the lenders from time to time party thereto. The Barclays credit facility provides for
borrowings in U.S. dollars and certain agreed upon foreign currencies in an aggregate amount of up to $100,000, including a subfacility for the issuance of letters of credit for Bryn Mawr Funding's
account in an aggregate face amount of up to $10,000. Bryn Mawr Funding's obligations to Barclays under the Barclays credit facility are secured by a first priority security interest in substantially
all of the assets of Bryn Mawr Funding, including its portfolio of assets and the assets of its subsidiaries, subject to customary exceptions. In addition, the Company has agreed to guaranty the
obligations of Barclays and grant a first priority lien in favor of Barclays, for the benefit of the lenders, on the membership interests in Bryn Mawr Funding. Interest under the Barclays credit
facility for (i) loans for which the Company elects the eurocurrency option is payable at a rate equal to LIBOR plus 325 basis points per annum; and (ii) loans for which the Company
elects the base rate option is payable at a rate equal to 225 basis points per annum plus the greatest of (a) the U.S. Prime
Rate, (b) the federal funds effective rate for such day plus 50 basis points, (c) three-month LIBOR plus 100 basis points per annum and (d) zero. Bryn Mawr Funding will pay a
commitment fee of 375 basis points per annum on the unused portion of the commitments under the Barclays credit facility during the revolving period and letter of credit participation fees and a
fronting fee on the average daily amount of any letters of credit issued under the Barclays credit facility. The Barclays credit facility

123

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)

provides
for a four year revolving period followed by a one year term-out period, after which time all outstanding advances and other amounts will become due and payable.

In
connection with the Barclays credit facility, Bryn Mawr Funding has made certain representations and warranties and must comply with various covenants and reporting requirements, in
each case, customary for financings of this type, including the following financial covenants: (a) the Company's minimum consolidated shareholders' equity, as determined in accordance with GAAP
and measured as of each quarter-end, must be at least $1,500,000; (b) the Company must maintain at all times a 200% asset coverage ratio; and (c) Bryn Mawr Funding must maintain, as of
each quarter-end, an adjusted asset coverage ratio of 350%.

The
Barclays credit facility contains events of default customary for financings of this type as described in the loan documentation. Upon the occurrence of certain events of default,
Barclays, at the instruction of the lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the Barclays credit facility immediately due and
payable. Upon the occurrence of other events of default, the commitments will automatically terminate and the outstanding advances and other obligations under the Barclays credit facility will become
immediately due and payable. During the continuation of certain events of default and subject, in certain cases, to the instructions of the lenders, the Company must pay interest at a default rate.

The
Company incurred costs in connection with obtaining the Barclays credit facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and
amortizes to interest expense over the life of the Barclays credit facility. As of December 31, 2017, $196 of such deferred financing costs had yet to be amortized to interest expense.

BNP Facility

On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing subsidiary,
entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage International, Ltd (as assignee of BNP Paribas Prime Brokerage, Inc.), or BNP. As
amended to date, Berwyn Funding can borrow, from time to time, up to $325,000 from BNP. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or
the committed facility agreement, a U.S. PB Agreement by and
between Berwyn Funding and BNP, and related transaction documents each dated as of December 11, 2013, as amended to date, which are collectively referred to herein as the BNP financing
agreements. Under the terms of the BNP facility, as amended, the maximum committed amount available to Berwyn Funding is $300,000, the interest rate payable on borrowings under the committed facility
agreement is three-month LIBOR plus 135 basis points and the commitment fee payable under the committed facility agreement is (a) 65 basis points on unused amounts so long as 75% or more of the
facility amount under the committed facility agreement is utilized or (b) 85 basis points on unused amounts if less than 75% of the facility amount under the committed facility agreement is
utilized.

Berwyn
Funding will pledge certain of its securities as collateral to secure borrowings under the BNP facility. The value of securities required to be pledged by Berwyn Funding is
determined in accordance with the margin requirements described in the BNP financing agreements. Berwyn Funding's obligations to BNP under the BNP facility are secured by a first priority security
interest in substantially all of the assets of Berwyn Funding, including its portfolio of securities. The obligations of Berwyn Funding under the BNP facility are non-recourse to the Company and the
Company's exposure under the BNP facility is limited to the value of the Company's investment in Berwyn Funding.

Berwyn
Funding may terminate the committed facility agreement upon 270 days' notice. Subject to certain cancellation rights, and absent a default or facility termination event,
BNP is required to

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FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)

provide
Berwyn Funding with 270 days' notice prior to terminating or amending the committed facility agreement.

In
connection with the BNP facility, Berwyn Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other
customary requirements for similar financing transactions. The BNP facility contains events of default and termination events customary for similar financing transactions, and additionally an event of
default or termination event upon the termination of the investment advisory and administrative services agreement or if FS Advisor otherwise ceases to act as investment adviser to the Company and is
not immediately replaced by an affiliate or other investment adviser acceptable to BNP.

The
Company incurred costs in connection with obtaining the BNP facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortized to
interest expense over the life of the BNP facility. As of December 31, 2017, all of such deferred financing costs had been amortized to interest expense.

Citibank Credit Facility

On March 24, 2015, EP Funding LLC, or EP Funding, the Company's wholly-owned, special purpose financing subsidiary, repaid and
terminated the revolving credit facility, or the Citibank credit facility, with Citibank, N.A., or Citibank, as administrative agent, and the financial institutions and other lenders from time to time
party thereto. The Citibank credit facility provided for borrowings in an aggregate principal amount up to $175,000 on a committed basis. Prior to the termination of the Citibank credit facility,
borrowings under the Citibank credit facility accrued interest at a rate equal to three-month LIBOR plus 275 basis points per annum. Under the Citibank credit facility, EP Funding was subject to a
non-usage fee of 50 basis points per annum to the extent that the aggregate principal amount available under the Citibank credit facility was not borrowed.

Deutsche Bank Credit Facility

On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing subsidiary,
entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party thereto. Under
the terms of the Deutsche Bank credit facility, as amended, the maximum committed amount available to FSEP Funding is $340,000, the interest rate payable on borrowings is three-month LIBOR plus 205
basis points and FSEP Funding is subject to a non-usage fee of 75 basis points per annum. Any amounts borrowed under the Deutsche Bank credit facility will mature, and all accrued and unpaid interest
thereunder will be due and payable, on June 11, 2018.

FSEP
Funding's obligations to the lenders under the Deutsche Bank credit facility are secured by a first priority security interest in substantially all of the assets of FSEP Funding,
including its portfolio of securities. The obligations of FSEP Funding under the Deutsche Bank credit facility are non-recourse to the Company and the Company's exposure under the Deutsche Bank credit
facility is limited to the value of the Company's investment in FSEP Funding.

Borrowings
under the Deutsche Bank credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to FSEP Funding varies depending upon
the types of assets in FSEP Funding's portfolio. The occurrence of certain events described as "Super-Collateralization Events" in the credit agreement that governs the Deutsche Bank credit facility,
or a decline in the Company's net asset value below a specified threshold, results in a lowering of the amount of funds that will be advanced against such assets. Super-Collateralization Events
include, without limitation: (i) the bankruptcy or insolvency of the Company's sub-advisor or FS Advisor;

125

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FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)

(ii) the
Company's sub-advisor ceasing to act as the Company's sub-adviser or FS Advisor ceasing to act as the Company's investment adviser; (iii) the Company ceasing to act as FSEP
Funding's investment manager, becoming bankrupt or insolvent, defaulting on certain material agreements or failing to maintain a net asset value above a specified threshold; and (iv) the
Company, the Company's sub-advisor or FS Advisor committing fraud or other illicit acts in its or their investment advisory capacities.

In
connection with the Deutsche Bank credit facility, FSEP Funding has made certain representations and warranties and is required to comply with various covenants, reporting
requirements and other customary requirements for similar financing transactions. The Deutsche Bank financing agreements contain events of default customary for similar financing transactions.

The
Company incurred costs in connection with obtaining and amending the Deutsche Bank credit facility, which the Company recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the Deutsche Bank credit facility. As of December 31, 2017, $524 of such deferred financing costs had yet to be amortized to interest
expense.

Fortress Facility

On November 6, 2015, Foxfields Funding LLC, or Foxfields Funding, a wholly-owned financing subsidiary of the Company, entered into
a senior secured multiple draw term loan facility, or the Fortress facility, with Fortress as administrative agent, the lenders from time to time party thereto and the other loan parties from time to
time party thereto. Pursuant to the Fortress facility, as amended, Foxfields Funding has borrowed term loans in the amount of $155,000. Interest under the Fortress facility for (i) loans
bearing interest by reference to LIBOR accrues at a rate equal to LIBOR (subject to a floor of 75 basis points) plus 500 basis points per annum, and (ii) loans bearing interest by reference to
the base rate accrues at 400 basis points per annum plus the greater of: (x) the per annum rate of interest announced, from time to time, within Wells Fargo Bank, National Association at its
principal office in San Francisco as its "prime rate," and (y) 175 basis points per annum.

In
connection with the Fortress facility, Foxfields Funding has made certain representations and warranties and must comply with various covenants and reporting requirements customary
for facilities of this type, including the following financial covenants: (a) the Company's minimum consolidated shareholders' equity, as determined in accordance with GAAP and measured as of
each fiscal quarter-end, must be greater than $1,500,000; (b) the Company must maintain at all times a 200% asset coverage ratio; (c) Foxfields Funding must maintain, as of each
quarter-end, an asset coverage ratio of either 300% or 325% depending on the relative composition of its portfolio between debt and equity investments; and (d) the portfolio investments must be
issued by not fewer than 10 unrelated obligors at all times, measured as of each quarter-end.

The
Fortress facility contains events of default customary for facilities of this type as described in the loan documentation. Upon the occurrence of an event of default, Fortress, at
the instruction or with the consent of the lenders, may terminate the commitments and declare the outstanding advances and all other obligations under the Fortress facility immediately due and
payable. During the continuation of certain events of default, the Company must pay interest at a default rate.

The
Company incurred costs in connection with obtaining and amending the Fortress facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and
amortizes to interest expense over the life of the Fortress facility. As of December 31, 2017, $884 of such deferred financing costs had yet to be amortized to interest expense.

126

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)



Note 8. Financing Arrangements (Continued)

Goldman Repurchase Financing

On September 11, 2014, through its two wholly-owned, special-purpose financing subsidiaries, Gladwyne Funding LLC, or Gladwyne
Funding, and Strafford Funding LLC, or Strafford Funding, the Company entered into a debt financing arrangement with Goldman, which was subsequently twice amended, or the Goldman repurchase
financing. Prior to its termination on April 19, 2017, the amount borrowed under the Goldman repurchase financing was $325,000. On April 19, 2017, in connection with the closing of the
Goldman repurchase financing, (i) all of the Floating Rate Notes, or Notes, issued by Gladwyne Funding to Strafford Funding were canceled and the indenture under which the Notes were issued was
discharged, (ii) the master repurchase agreement between Strafford Funding and Goldman and each transaction thereunder was terminated and (iii) accordingly, the Goldman repurchase
financing was prepaid in full and terminated.

Goldman Facility

On April 19, 2017, Gladwyne Funding entered into a Credit Agreement with Goldman, as lender, sole lead arranger and administrative agent,
Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator, or the Goldman term facility. Under the terms of the Goldman term facility, as amended, Gladwyne Funding
has borrowed term loans in the amount of $425,000. The interest payable on borrowings under the Goldman term facility is three-month LIBOR plus 372 basis points per annum. The Goldman term facility
will mature, and all outstanding principal and accrued and unpaid interest thereunder, will be due and payable, on September 15, 2019.

If
the Goldman term facility is accelerated prior to its stated maturity date due to an event of default or all or a portion of the borrowings are prepaid, then Gladwyne Funding must pay
to Goldman a fee equal to the present value of the aggregate amount of the spread over LIBOR (372 basis points per annum) that would have been payable to Goldman on the subject borrowings through the
facility's maturity date had the acceleration or prepayment not occurred.

Pursuant
to the Goldman term facility, Gladwyne Funding has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other
customary requirements for similar transactions. The Goldman term facility contains events of default and termination events customary for for similar financing transactions.

The
Company incurred costs in connection with obtaining the Goldman term facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes
to interest expense over the life of the Goldman term facility. As of December 31, 2017, $999 of such deferred financing costs had yet to be amortized to interest expense.

Natixis Credit Facility

On August 2, 2017, Energy Funding LLC, or Energy Funding, the Company's wholly-owned, special-purpose financing subsidiary, repaid
and terminated the revolving credit facility, or the Natixis credit facility, which Energy Funding originally entered into on July 11, 2015 with Natixis, New York Branch, or Natixis, as
administrative agent and lender, Wells Fargo Bank, National Association, as collateral agent and custodian, and the other lenders from time to time party thereto. The Natixis credit facility provided
for revolving borrowings through January 11, 2015 in an aggregate principal amount up to $150,000 on a committed basis. Prior to the termination of the Natixis credit facility, borrowings under
the Natixis credit facility accrued interest at a rate equal to the applicable commercial paper rate plus 225 basis points per annum.

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 8. Financing Arrangements (Continued)

Wells Fargo Credit Facility

On July 27, 2017 and July 28, 2017, Wayne Funding LLC, or Wayne Funding, the Company's wholly-owned, special purpose
financing subsidiary, repaid and terminated, respectively, the revolving credit facility, or the Wells Fargo credit facility, which Wayne Funding originally entered into on September 9, 2014
with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and institutional lenders from time to time party thereto and Wells Fargo Bank, National Association,
collectively referred to herein as Wells Fargo, as the collateral agent, account bank and collateral custodian under the Wells Fargo credit facility. The Wells Fargo credit facility provided for
borrowings in an aggregate principal amount up to $60,000 on a committed basis. Prior to the termination of the Wells Fargo credit facility, borrowings accrued interest at a rate equal to three-month
LIBOR plus a spread ranging between 250 and 275 basis points per annum, depending on the composition of the portfolio of assets for the relevant period.

Note 9. Commitments and Contingencies

The Company enters into contracts that contain a variety of indemnification provisions. The Company's maximum exposure under these arrangements is unknown; however, the Company has not
had prior claims or losses pursuant to these contracts. Management of FS Advisor has reviewed the Company's existing contracts and expects the risk of loss to the Company to be remote.

The
Company is not currently subject to any material legal proceedings and, to the Company's knowledge, no material legal proceedings are threatened against the Company. From time to
time, the Company may be party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company's rights under contracts with its
portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material effect upon its financial
condition or results of operations.

See
Note 6 for a discussion of the Company's unfunded commitments.

Note 10. Senior Securities Asset Coverage

Information about the Company's senior securities is shown in the table below for the years ended December 31, 2017, 2016, 2015, 2014 and 2013.



Year Ended December 31,

Total Amount
Outstanding
Exclusive of Treasury
Securities(1)

Asset Coverage
Per Unit(2)

Involuntary
Liquidation
Preference
per Unit(3)

Average Market
Value per Unit
(Exclude Bank
Loans)(4)2013

$
624,174


3.69





N/A2014

$
1,090,413


3.35





N/A2015

$
1,040,494


3.32





N/A2016

$
873,665


4.83





N/A2017

$
1,220,000


3.43





N/A


(1)Total
amount of each class of senior securities outstanding at the end of the year presented. For purposes of the asset coverage test, the Company treated the
outstanding notional amount of the TRS, less the initial amount of any cash collateral required to be posted, as a senior security. The TRS was entered into on August 11, 2011 and was
terminated on May 24, 2013.


128

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 10. Senior Securities Asset Coverage (Continued)

(2)Asset
coverage per unit is the ratio of the carrying value of the Company's total consolidated assets, less all liabilities and indebtedness not represented by
senior securities, to the aggregate amount of senior securities representing indebtedness.(3)The
amount to which such class of senior security would be entitled upon the voluntary liquidation of the Company in preference to any security junior to it. The
"" in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior
securities.(4)Not
applicable because senior securities are not registered for public trading on an exchange.


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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 11. Financial Highlights

The following is a schedule of financial highlights of the Company for the years ended December 31, 2017, 2016, 2015, 2014 and 2013.



Year Ended December 31,2017

2016

2015

2014

2013Per Share Data:(1)Net asset value, beginning of year

$
7.61

$
6.50

$
8.57

$
9.66

$
9.34Results of operations(2)Net investment income


0.65


0.57


0.67


0.74


0.58Net realized and unrealized appreciation (depreciation) on investments and total return swap and gain/loss on foreign currency


(0.90
)

1.25


(2.18
)

(1.46
)

0.36​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


(0.25
)

1.82


(1.51
)

(0.72
)

0.94​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Shareholder distributions(3)Distributions from net investment income


(0.71
)

(0.67
)

(0.67
)

(0.62
)

(0.65
)Distributions from net realized gain on investments








(0.04
)

(0.07
)

(0.01
)Distributions representing tax return of capital


(0.00
)

(0.04
)







​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(0.71
)

(0.71
)

(0.71
)

(0.69
)

(0.66
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(4)








0.18


0.35


0.09Repurchases of common shares(5)














Offering costs(2)








(0.03
)

(0.03
)

(0.05
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from capital share transactions








0.15


0.32


0.04​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net asset value, end of year

$
6.65

$
7.61

$
6.50

$
8.57

$
9.66​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Shares outstanding, end of year


446,045,135


440,162,095


372,210,264


299,394,371


173,532,259​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total return(6)


(3.65
)%

29.53
%

(17.34
)%

(4.79
)%

10.76
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total return (without assuming reinvestment of distributions)(6)


(3.29
)%

28.00
%

(15.87
)%

(4.14
)%

10.49
%​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Ratio/Supplemental Data:Net assets, end of year

$
2,966,042

$
3,348,894

$
2,417,861

$
2,565,721

$
1,676,237Ratio of net investment income to average net assets(7)


8.82
%

8.19
%

8.31
%

7.71
%

6.04
%Ratio of total expenses to average net assets(7)


4.94
%

4.88
%

5.55
%

5.07
%

5.89
%Portfolio turnover


34.08
%

35.85
%

22.70
%

35.55
%

53.26
%Total amount of senior securities outstanding, exclusive of treasury securities(8)

$
1,220,000

$
873,665

$
1,040,494

$
1,090,413

$
624,174Asset coverage per unit(9)


3.43


4.83


3.32


3.35


3.69


(1)Per
share data may be rounded in order to recompute the ending net asset value per share.(2)The
per share data was derived by using the weighted average shares outstanding during the applicable year.(3)The
per share data for distributions reflects the actual amount of distributions paid per share during the applicable year.(4)The
issuance of common shares on a per share basis reflects the incremental net asset value changes as a result of the issuance of common shares in the Company's
continuous public offering and pursuant to the Company's distribution reinvestment plan. The issuance of common shares at an offering price, net of selling commissions and dealer manager fees, that is
greater than the net asset value per share results in an increase in net asset value per share. The per share impact of the Company's issuance of common shares was an increase in net asset value of
less than $0.01 per share during each year.(5)The
per share impact of the Company's repurchases of common shares is a reduction to net asset value of less than $0.01 per share during each year.(6)The
total return for each year presented was calculated based on the change in net asset value during the applicable year, including the impact of distributions
reinvested in accordance with the Company's distribution reinvestment plan. The total


130

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 11. Financial Highlights (Continued)

return
(without assuming reinvestment of distributions) for each year presented was calculated by taking the net asset value per share as of the end of the applicable year, adding the cash
distributions per share which were declared during the applicable year and dividing the total by the net asset value per share at the beginning of the applicable year. The total returns do not
consider the effect of any sales commissions or charges that may be incurred in connection with the sale of the Company's common shares. The total returns include the effect of the issuance of common
shares at a net offering price that is greater than net asset value per share, which causes an increase in net asset value per share. The historical calculations of total returns in the table should
not be considered representations of the Company's future total returns, which may be greater or less than the returns shown in the table due to a number of factors, including the Company's ability or
inability to make investments in companies that meet its investment criteria, the interest rates payable on the debt securities the Company acquires, the level of the Company's expenses, variations in
and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of
these factors, results for any previous year should not be relied upon as being indicative of performance in future years. The total return calculations set forth above represent the total returns on
the Company's investment portfolio during the applicable year and do not represent actual returns to shareholders. (7)Weighted
average net assets during the applicable years are used for this calculation. The following is a schedule of supplemental ratios for the years ended
December 31, 2017, 2016, 2015, 2014 and 2013:


Year Ended December 31,2017

2016

2015

2014

2013Ratio of accrued capital gains incentive fees to average net assets











(0.48
)%

0.75
%Ratio of subordinated income incentive fees to average net assets


0.32
%

0.20
%

1.13
%

1.41
%

0.69
%Ratio of interest expense to average net assets


1.52
%

1.31
%

1.12
%

0.84
%

0.84
%Ratio of offering costs to average net assets





0.17
%










(8)Total
amount of each class of senior securities outstanding at the end of the year presented. For purposes of the asset coverage test, the Company treated the
outstanding notional amount of the Company's TRS, less the initial amount of any cash collateral required to be posted, as a senior security. The TRS was entered into on August 11, 2011 and was
terminated on May 24, 2013.(9)Asset
coverage per unit is the ratio of the carrying value of the Company's total consolidated assets, less liabilities and indebtedness not represented by senior
securities, to the aggregate amount of senior securities representing indebtedness.


131

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 12. Selected Quarterly Financial Data (Unaudited)

The following is the quarterly results of operations for the years ended December 31, 2017 and 2016. The following information reflects all normal recurring adjustments necessary
for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.



Quarter EndedDecember 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017Investment income

$
98,799

$
101,071

$
102,640

$
116,246Operating expensesTotal expenses


38,611


38,139


37,376


46,458Less: Expense reimbursement from sponsor


(5,945
)

(7,095
)




(18,220
)Add: Expense recoupment to sponsor








2,858


​
​
​
​
​
​
​
​
​
​
​
​
​
​Net expenses


32,666


31,044


40,234


28,238​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


66,133


70,027


62,406


88,008Realized and unrealized gain (loss)


(160,738
)

(1,053
)

(211,264
)

(26,489
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
(94,605
)
$
68,974

$
(148,858
)
$
61,519​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share information-basic and dilutedNet investment income

$
0.15

$
0.16

$
0.14

$
0.20​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
(0.21
)
$
0.16

$
(0.34
)
$
0.14​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


442,770,887


443,940,981


443,232,133


440,957,676​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​






Quarter EndedDecember 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016Investment income

$
94,122

$
89,382

$
88,326

$
97,910Operating expensesTotal expenses


37,622


33,651


31,300


35,520​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


56,500


55,731


57,026


62,390Realized and unrealized gain (loss)


131,673


90,595


399,519


(100,850
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
188,173

$
146,326

$
456,545

$
(38,460
)​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share information-basic and dilutedNet investment income

$
0.13

$
0.13

$
0.14

$
0.17​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
0.43

$
0.35

$
1.14

$
(0.10
)​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


435,223,922


421,515,796


401,013,506


377,688,379​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


The
sum of quarterly per share amounts does not necessarily equal per share amounts reported for the years ended December 31, 2017 and 2016. This is due to changes in the number
of weighted average shares outstanding and the effects of rounding for each period.

132

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Table of Contents

FS Energy and Power Fund

Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts) (Continued)

Note 13. Subsequent Events

Waiver of Base Management Fee and Incentive Fee

Effective January 1, 2018, FS Advisor agreed to (a) permanently waive a portion of its base management fee to which it is entitled
under the investment advisory and administrative services agreement, so that the fee received equals 1.75% of the average value of the Company's gross assets and (b) waive incentive fees on
income for the 2018 calendar year.

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Table of Contents

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As
required by Exchange Act Rule 13(a)-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017. Based on the foregoing, our chief
executive officer and chief financial officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports
under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated
and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act
Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our
internal control over financial reporting includes those policies and procedures that:

1.     Pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company's transactions and the dispositions of assets of the Company;

2.     Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and board of trustees; and

3.     Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material
effect on the financial statements.

Because
of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and
presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management's
report on internal control over financial reporting is set forth above under the heading "Management's Report on Internal Control over Financial Reporting" in Item 8
of this annual report on Form 10-K.

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Table of Contents

Attestation Report of the Registered Public Accounting Firm

Our registered public accounting firm has issued an attestation report on our internal control over financial reporting. This report appears on
page 79.

Changes in Internal Control Over Financial Reporting

During our fourth quarter of 2017, there has been no change in our internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) or 15d-15(f)) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information.

None.

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Table of Contents

PART III

The Company will file a definitive Proxy Statement for its 2017 Annual Meeting of Shareholders with the SEC, pursuant to
Regulation 14A promulgated under the Exchange Act, not later than 120 days after the end of its fiscal year. Accordingly, certain information required by Part III has been omitted
under General Instruction G(3) to Form 10-K. Only those sections of the Company's definitive Proxy Statement that specifically address the items set forth herein are incorporated by
reference.

Item 10.    Directors, Executive Officers and Corporate Governance.

The information required by Item 10 is hereby incorporated by reference from the Company's definitive Proxy Statement relating to the
Company's 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of the Company's fiscal year.

Item 11.    Executive Compensation.

The information required by Item 11 is hereby incorporated by reference from the Company's definitive Proxy Statement relating to the
Company's 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of the Company's fiscal year.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 is hereby incorporated by reference from the Company's definitive Proxy Statement relating to the
Company's 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of the Company's fiscal year.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

The information required by Item 13 is hereby incorporated by reference from the Company's definitive Proxy Statement relating to the
Company's 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of the Company's fiscal year.

Item 14.    Principal Accountant Fees and Services.

The information required by Item 14 is hereby incorporated by reference from the Company's definitive Proxy Statement relating to the
Company's 2018 Annual Meeting of Shareholders, to be filed with the SEC within 120 days following the end of the Company's fiscal year.

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Table of Contents

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

a. Documents Filed as Part of this Report

The following financial statements are set forth in Item 8:





PageManagement's Report on Internal Control over Financial Reporting

78Report of Independent Registered Public Accounting Firm

79Report of Independent Registered Public Accounting Firm

80Consolidated Balance Sheets as of December 31, 2017 and 2016

81Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015

82Consolidated Statements of Changes in Net Assets for the years ended December 31, 2017, 2016 and
2015

83Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015

84Consolidated Schedules of Investments as of December 31, 2017 and 2016

85Notes to Consolidated Financial Statements

99


b. Exhibits

Please note that the agreements included as exhibits to this annual report on Form 10-K are included to provide information regarding
their terms and are not intended to provide any other factual or disclosure information about FS Energy and Power Fund or the other parties to the agreements. The agreements contain representations
and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of
affairs as of the date they were made or at any other time.

The
following exhibits are filed as part of this annual report or hereby incorporated by reference to exhibits previously filed with the SEC:



3.1

Third Amended and Restated Declaration of Trust of FS Energy and Power Fund.(Incorporated by
reference to Exhibit 3.1 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 10, 2017.)3.2

Amendment No. 1 to the Third Amended and Restated Declaration of Trust of FS Energy and Power Fund.(Incorporated by reference to Exhibit 3.2 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 10, 2017.)3.3

Second Amended and Restated Bylaws of FS Energy and Power Fund.(Incorporated by reference to
Exhibit 3.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 1, 2017.)4.1

Second Amended and Restated Distribution Reinvestment Plan of FS Energy and Power Fund.(Incorporated
by reference to Exhibit 4.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 17, 2016.)10.1

Investment Advisory and Administrative Services Agreement, dated as of April 28, 2011, by and between
FS Energy and Power Fund and FS Investment Advisor, LLC.(Incorporated by reference to Exhibit (g)(1) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on
Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.2

Amendment No. 1 dated as of August 10, 2012, to Investment Advisory and Administrative Services Agreement,
dated as of April 28, 2011, by and between FS Energy and Power Fund and FS Investment Advisor, LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Quarterly Report on
Form 10-Q filed on August 14, 2012.)


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10.3

Investment Sub-advisory Agreement, dated as of April 28, 2011, by and between FS Investment Advisor, LLC and
GSO Capital Partners LP.(Incorporated by reference to Exhibit (g)(2) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on
May 6, 2011.)10.4

Custodian Agreement, dated as of November 14, 2011, by and between State Street Bank and Trust Company and
FS Energy and Power Fund.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 14, 2011.)10.5

Escrow Agreement, dated as of March 29, 2011, by and between FS Energy and Power Fund and UMB Bank, N.A.(Incorporated by reference to Exhibit (k) filed with Amendment No. 3 to FS Energy and Power Fund's registration statement on Form N-2 (File No. 333-169679) filed on May 6, 2011.)10.6

Amended and Restated Credit Agreement, dated as of June 11, 2014, by and among FSEP Term Funding, LLC and Deutsche Bank
AG, New York Branch.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 17, 2014.)10.7

First Amendment to Amended and Restated Credit Agreement, dated as of June 11, 2015, by and among FSEP Term Funding, LLC
and Deutsche Bank AG, New York Branch(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on June 15, 2015.)10.8

Second Amendment to Amended and Restated Credit Agreement, dated as of June 10, 2016, by and among FSEP Term Funding,
 LLC, as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report
on Form 8-K filed on June 16, 2016.)10.9

Third Amendment to Amended and Restated Credit Agreement, dated as of June 9, 2017, by and among FSEP Term Funding, LLC,
as borrower, Deutsche Bank AG, New York Branch, as administrative agent and a lender, and the other lenders party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on
Form 8-K filed on June 14, 2017.)10.10

Asset Contribution Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term
Funding, LLC.(Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.11

Investment Management Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term
Funding, LLC.(Incorporated by reference to Exhibit 10.9 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.12

Security Agreement, dated as of June 24, 2011, by and between FSEP Term Funding, LLC and Deutsche Bank AG,
New York Branch.(Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.13

Termination and Release Acknowledgment, dated as of May 11, 2012, by Citibank N.A. in favor of FS Energy and Power
Fund.(Incorporated by reference to Exhibit 10.15 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.14

Termination Acknowledgment (TRS), dated as of May 24, 2013, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 31, 2013.)10.15

Loan Agreement, dated as of May 24, 2013, by and among EP Funding LLC, the financial institutions and other
lenders from time to time party thereto and Citibank, N.A., as administrative agent.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29,
2013.)10.16

Account Control Agreement, dated as of May 24, 2013, by and among EP Funding LLC, Citibank, N.A. and Virtus
Group, LP.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)


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10.17

Security Agreement, dated as of May 24, 2013, by and between EP Funding LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.18

Investment Management Agreement, dated as of May 24, 2013, by and between FS Energy and Power Fund and EP
Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.19

Credit Agreement, dated as of July 11, 2013, by and among Energy Funding LLC, Natixis, New York Branch, Wells
Fargo Bank, National Association and the other lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16,
2013.)10.20

Securities Account Control Agreement, dated as of July 11, 2013, by and among Energy Funding LLC and Wells
Fargo Bank, National Association.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.21

Collateral Management Agreement, dated as of July 11, 2013, by and between FS Energy and Power Fund and Energy
Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.22

Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated May 16, 2013, by and between FS Energy
and Power Fund and Franklin Square Holdings, L.P.(Incorporated by reference to Exhibit 99.1 to FS Energy and Power Fund's Current report on Form 8-K filed on May 17, 2013.)10.23

Committed Facility Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP
Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.24

First Amendment Agreement, dated as of August 18, 2014, between BNP Paribas Prime Brokerage, Inc., on behalf of itself
and as agent for the BNPP Entities, and Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 21, 2014.)10.25

Fifth Amendment to the Committed Facility Agreement, dated as of May 4, 2016 by and between Berwyn Funding LLC and BNP
Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)10.26

U.S. PB Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime
Brokerage, Inc.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.27

First Amendment to the U.S. PB Agreement, dated as of May 4, 2016, by and between Berwyn Funding LLC and BNP Paribas
Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)10.28

Special Custody and Pledge Agreement, dated as of December 11, 2013, by and among State Street Bank and Trust
Company, Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17,
2013.)10.29

Investment Management Agreement, dated as of December 11, 2013, by and between FS Energy and Power Fund and
Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.30

Loan and Servicing Agreement, dated as of September 9, 2014, among Wayne Funding LLC, as borrower, Wells
Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)


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10.31

First Amendment to the Loan and Servicing Agreement, dated as of October 13, 2016, among Wayne Funding LLC, as Borrower,
Wells Fargo Securities, LLC, as Administrative Agent, Wells Fargo Bank, National Association, as institutional lender, and Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on October 14, 2016.)10.32

Purchase and Sale Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC, as purchaser,
and FS Energy and Power Fund, as seller.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.33

Collateral Management Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC and FS
Energy and Power Fund, as collateral manager.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.34

Securities Account Control Agreement, dated as of September 9, 2014, by and among Wayne Funding LLC, as
pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National Association, as securities intermediary.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current
Report on Form 8-K filed on September 15, 2014.)10.35

Amended and Restated Sale and Contribution Agreement, dated as of September 11, 2014, by and between FS Energy and
Power Fund and Gladwyne Funding LLC.(Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.36

Indenture, dated as of September 11, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as
trustee.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.37

First Supplemental Indenture, dated as of December 15, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as
trustee.(Incorporated by reference to Exhibit 10.1 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.38

Second Supplemental Indenture, dated as of September 21, 2016, by and between Gladwyne Funding LLC and Citibank, N.A.,
as trustee.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 22, 2016.)10.39

Gladwyne Funding LLC Floating Rate Notes due 2024.(Incorporated by reference to
Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.40

Amended and Restated September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford
Funding LLC, dated as of September 21, 2016.(Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 22, 2016.)10.41

Second Amended and Restated Master Confirmation, dated as of September 21, 2016, by and between Goldman Sachs Bank
USA and Strafford Funding LLC. (Incorporated by reference to Exhibit 10.56 of FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on November 9, 2016.)10.42

Amended and Restated Revolving Credit Agreement, dated as of December 15, 2014, by and between FS Energy and Power Fund and
Strafford Funding LLC.(Incorporated by reference to Exhibit 10.3 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.43

Amended and Restated Investment Management Agreement, dated as of September 11, 2014, by and between Gladwyne
Funding LLC and FS Energy and Power Fund.(Incorporated by reference to Exhibit 10.10 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)


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10.44

Collateral Administration Agreement, dated as of September 11, 2014, by and among Gladwyne Funding LLC, FS
Energy and Power Fund and Virtus Group, LP.(Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.45

Term Loan and Security Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit
Co LLC, as administrative agent, the lenders from time to time party thereto and the other loan parties from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current
Report on Form 8-K filed on November 12, 2015.)10.46

Contribution Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields Funding LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.47

Investment Management Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Foxfields
Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.48

Securities Account Control Agreement, dated as of November 6, 2015, by and among Foxfields Funding LLC, Fortress Credit
Co LLC, as administrative agent and State Street Bank and Trust Company.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12,
2015.)10.49

Guaranty, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC.(Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.50

Pledge Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.51

First Amendment to Term Loan and Security Agreement, dated as of November 25, 2015, by and among Foxfields Funding LLC,
Fortress Credit Co LLC, as administrative agent, the lenders signatory thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 1,
2015.)10.52

Senior Secured Revolving Credit Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays
Bank PLC, as administrative agent, and the lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24,
2016.)10.53

Contribution Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.54

Investment Management Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr
Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.55

Control Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as collateral
agent, and State Street Bank and Trust Company, as custodian.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.56

Guaranty, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.57

Pledge Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral
agent.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)


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10.58

Guarantee, Pledge and Security Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, any subsidiary
guarantors from time to time party thereto, Barclays Bank PLC, as revolving administrative agent, and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.7 to FS Energy and Power
Fund's Current Report on Form 8-K filed on May 24, 2016.)10.59

Credit Agreement, dated as of April 19, 2017, among Gladwyne Funding LLC, Goldman Sachs Bank USA, as lender, sole lead
arranger and administrative agent, Citibank, N.A., as collateral agent, and Virtus Group, LP, as collateral administrator.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on
Form 8-K filed on April 25, 2017.)20.1*

Subsidiaries of FS Energy and Power Fund.31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended.32.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2*

Certification of Chief Financial Officer and Chief Financial Officer pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.


*Filed
herewith.


c. Financial statement schedules

No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been
presented in the aforementioned consolidated financial statements.

Item 16.    Form 10-K Summary.

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual
report to be signed on its behalf by the undersigned, thereunto duly authorized.



FS ENERGY AND POWER FUNDDate: March 7, 2018

/s/ Michael C. Forman Michael C. Forman
Chief Executive Officer


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Table of Contents

Pursuant
to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacity and
on the dates indicated.



Date: March 7, 2018

/s/ Michael C. Forman Michael C. Forman
Chief Executive Officer and Trustee
(Principal Executive Officer)Date: March 7, 2018

/s/ Edward T. Gallivan, Jr. Edward T. Gallivan, Jr.
Chief Financial Officer
(Principal Accounting and Financial Officer)Date: March 7, 2018

/s/ David Adelman David Adelman
TrusteeDate: March 7, 2018

/s/ Sidney Brown Sidney Brown
TrusteeDate: March 7, 2018

/s/ Gregory P. Chandler Gregory P. Chandler
TrusteeDate: March 7, 2018

/s/ Richard Goldstein Richard Goldstein
TrusteeDate: March 7, 2018

/s/ Thomas J. Gravina Thomas J. Gravina
TrusteeDate: March 7, 2018

/s/ Michael Heller Michael Heller
TrusteeDate: March 7, 2018

/s/ Charles P. Pizzi Charles P. Pizzi
TrusteeDate: March 7, 2018

/s/ Richard W. Vague Richard W. Vague
TrusteeDate: March 7, 2018

/s/ R. Richard Williams R. Richard Williams
Trustee


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